Jeffrey Chernick, a toy salesman out of New York, was sentenced on Friday to three months in prison for hiding millions of dollars from the IRS. Upon his release, Chernick will serve six months’ house arrest and six months’ probation. The judge did not impose an additional fine as Chernick is already subject to more than $4.5 million in civil penalties for filing a false tax return.
Chernick becomes the second UBS client to be sentenced in the scandal. Earlier in the week, Steven Michael Rubinstein was sentenced to three years’ probation, one year of house arrest and a$40,000 fine.
I noted at the Rubinstein sentencing that I felt that the punishment was light. US District Judge James Cohn apparently felt similarly, noting with respect to these specific cases, “The concept that tax evaders can get probation sends the wrong message… Some amount of incarceration is warranted.”
Chernick cooperated with authorities, which may have lessened his sentence: he had faced up to three years in prison. But even prosecutors sought leniency for Chernick, suggesting that his cooperation played a “significant and early step” in the UBS investigations, offering information about other taxpayers and banks.
In addition to pleading guilty to tax evasion, Chernick also admitted to paying a bribe, arranged by attorney Matthias Rickenbach and Swiss banker Hansruedi Schumacher, to a Swiss government official for information about which UBS accounts would be given to US authorities. That investigation is ongoing and it will be interesting to see the reach of the bribery scheme.
Chernick began setting up offshore accounts as early as 1981 in order to hide commissions on toy sales from the IRS. Over the years, he moved money from account to account and otherwise attempted to conceal his assets.
Interestingly, Chernick made an effort to sign up for the IRS’ voluntary disclosure program but did not qualify. Taxpayers who were under investigation or already facing charges did not qualify for the program.
Expect more high profile disclosures over the next few weeks. Clearly, the IRS hopes to send a message. The real question is: who’s getting it?
The IRS crackdown on foreign accounts has been generating a lot of discussion in the blogosphere. Some folks argue that it’s a waste of resources, others argue that it’s been a long time coming.
Today’s Fix the Tax Code Friday question is:
Is the targeting of offshore accounts a fair use of IRS resources? Or should the IRS focus more on collections and reporting inside the US?
The IRS is making serious noise about its attempts to combat offshore tax evasion. What could be a better pulpit than its high profile UBS matter?
Just a short while after details on the UBS settlement were released, the IRS announced the indictments of a former UBS bank executive and a Swiss attorney. Hansruedi Schumacher, an exec at UBS, and Matthias Rickenbach, a Zurich lawyer with Rickenbach & Partner, were charged on Thursday with orchestrating tax evasion schemes targeted to wealthy Americans.
The indictments are largely ceremonial for the time being since both men remain in Switzerland – good for them since the Swiss will not extradite them to the US. However, if Schumacher or Rickenbach travel to a less extradition-resistant country, they could be taken into custody. Another UBS exec, Raoul Weil, who remains in Switzerland is already considered a fugitive by the Justice Department.
Expect more drama as the September 23 deadline for voluntary compliance nears…
Remember that great scene in the movie Footloose when Kevin Bacon is challenged to a game of chicken on the tractor?
It seems that the IRS is playing a little chicken of its own with taxpayers…
The IRS has entered into a settlement with UBS to divulge the names of about 4,450 account holders at the Swiss bank who are thought to have undisclosed assets. The accounts are said to have held about $18 billion at one point.
UBS is turning over 4,450 accounts. They’ve already turned over a few hundred. However, there are about 52,000 accounts at UBS owned by US taxpayers. Do the math.
Account holders will be notified before their names are released to the IRS but process is expected to take several months. However, the Voluntary Disclosure Program offered by the IRS ends on September 23 – likely before the account holders will be made aware of whether their information is being released to the IRS.
If the IRS believes that the information released by UBS indicates fraud on behalf of taxpayers, it will vigorously enforce the payment of back taxes, plus penalty and interest. Prosecution will be considered, if appropriate.
On the other hand, if taxpayers come forward under the Voluntary Disclosure Program, they can avoid prosecution and mitigate penalties.
So, the IRS is leaving UBS account holders with an interesting dilemma: come forward now or take your chances that your name isn’t in the pile. Who will blink first?
Maybe it’s summer.
Maybe it’s my grief over the UBS saga finally ending.
Or maybe I’ve just been inspired by 1LPoet to find my inner poet.
But it’s that time again. I feel some tax haiku coming on…
In honor of today’s post:
Oh Connecticut.
Your tax burden is so high.
Thank God for Jersey.
Re the UBS settlement:
It’s done, Switzerland.
No more [...]
Um, that’s all we know. Really. I’ve been sent a trillion links on this today and despite pages and pages of content, nobody has any real details.
The IRS has requested the names of more than 50,000 US taxpayers with accounts at UBS. The Swiss bank handed over about 300 names so far. [...]
Despite wide rumors that UBS might settle with the US government, there was no movement on the matter. The case, brought by the US government, focuses on the release of names of more than 50,000 US taxpayers who might have hidden assets in Switzerland for the purpose of evading tax.
This time it is the [...]
Rumors have been swirling for months that a settlement between UBS and the Justice Department would be announced in mid-July. Specifically, The New York Times had implied that the feds were backing off demands for the Swiss bank to release the names of more than 50,000 Americans with secret accounts.
The idea that no names [...]
As it turns out, the Swiss do have a little fight left in them after all.
The Swiss government has now advised that it would seize financial records from UBS rather than allow them to be turned over to the US. The Swiss Department of Justice and Police filed a statement in federal court advising [...]
The New York Times says yes. The Justice Department says no.
I’m not sure what to believe but it does make you wonder what’s going on… The Times has suggested that the DOJ may back off its investigation of more than 52,000 über rich Americans who held secret accounts at the Swiss bank, [...]
