CPA and Managing Director of a Foreign Corporation Found Guilty of Tax Fraud for Not Checking “Yes” on Schedule B, Part III and Failing to File FBAR Forms U.S. v. James A. Simon, CA‑7, 11-1837, August 15, 2013; 2013-2 USTC ¶50,480

A jury convicted James A. Simon, a CPA and a professor of accounting who was the managing director of three foreign corporations with signature authority over the corporations’ foreign bank accounts, of four counts of filing false income tax returns because he failed to check the “yes” box on his Forms 1040, Schedule B, Part III.

Foreign bank account requires that the Schedule B, Part III, be completed.  Although Mr. Simon had signature authority over foreign bank accounts, he did not properly complete the Schedule B on his Form 1040. You must check box 1 “yes” if at any time in 2013 the client had an interest or signature authority in a financial account located in a foreign country. The box must be checked “yes” even if the client is not required to file a TD Form 90-22.1 (for example, because the balance is too low to meet that form’s filing requirements.)

News. For 2013, the TD Form 90-22.1 has been replaced by the FinCEN Form 114 ‑ FBAR Foreign Bank Account Report.  Hear more about the changes to foreign asset reporting at our 2013 Tax Update Classes.

Failure to File FBAR Form also Criminal. CPA Simon was also convicted of three counts of failing to file TD Form 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR). Simon was required to file an FBAR for each year he had signature authority over a foreign account with a balance of $10,000 or more. The charges against Simon, which brought a 6-year prison sentence, went much further than the failure to correctly report his foreign banking activities. He was found guilty of 20 counts, including multiple counts of filing false tax returns, failure to file reports of foreign bank accounts, and fraud involving federal financial aid. The 7th Circuit Court of Appeals affirmed his conviction in 2013. Because he was under civil examination by the IRS, he was not eligible for either the Offshore Voluntary Disclosure Initiative or administrative relief. Simon’s wife committed suicide in 2007, three days after IRS agents raided the family’s home.

Warning.  Remember that having a signature authority over your elderly parents’ bank account in Mexico or Canada is one of the many surprising times that accounts are reportable.

Avoid preparer penalties. Ask every client if they have a foreign financial account and document the answer.

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