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The Unenviable Case of The Seggermans



TaxConnections Picture - Green Question GuyWhat if Someone Dies Owning an Undeclared Financial Account?
What Should The Heirs Do?

Henry Seggerman has first-hand experience with this type of situation. Without hesitation, my guess is that he’ll tell you to get the Estate into the IRS Offshore Voluntary Disclosure Program (“OVDP”). Henry is the son of a prominent New York businessman who passed away. Henry was named executor of his father’s estate, valued in excess of $24 million. Unfortunately, over half of this wealth, however, was maintained in secret and undeclared foreign bank accounts located in Switzerland and other jurisdictions. The father worked with his Swiss lawyer and other parties, arranging for over $12 million in the undeclared accounts to be left to his surviving spouse and five of his children, including Henry.

Henry’s position as executor charged him with various responsibilities, including filing an estate tax return for his deceased father. Henry signed the estate tax return for his father’s estate falsely underreporting its assets by over $12 million. Generally speaking one can say that an executor of an estate steps into the shoes of the deceased. Henry not only did that, he went a step further and perpetuated the fraud of the deceased. While this may possibly have pleased the deceased, it certainly did not please the Internal Revenue Service or the Department of Justice.

In order to access the undisclosed funds, the Swiss lawyer assisted Henry and three of his siblings (Suzanne Seggerman, Yvonne Seggerman, and Edmund Seggerman), in creating undisclosed Swiss bank accounts to hold the hidden money that they had inherited from their father. In order to tap the funds, Henry and his brother worked together, transferring funds from the brother’s Swiss account to a bank account for a foundation controlled by Henry. Henry then transferred the funds into the United States, in the guise of loan repayments.

Well, things didn’t quite work out as the Seggerman’s had hoped. All of them are currently awaiting sentencing after pleading guilty to various tax-related crimes. At the end of August 2013, Henry pled guilty to the following charges: conspiracy to defraud the United States, subscribing to a false and fraudulent estate tax return, as well as aiding and assisting in preparing false tax returns for his brother. In addition to promising to make a partial payment of restitution in the amount of $600,000, Henry is facing a maximum prison sentence of eleven years. Three of his siblings also pleaded guilty to conspiring to defraud the United States, as well as subscribing to false and fraudulent tax returns with each facing a maximum sentence of eleven years in prison.

What Could and Should the Family Have Done?

The family should have immediately taken the opportunity to come clean with the IRS and could have avoided all criminal liability. Had they acted quickly after the death of the father by using special provisions in the Offshore Voluntary Disclosure Program they probably could have qualified for significantly reduced penalties for those who have inherited undisclosed foreign accounts. These special provisions are discussed more fully below.

Tax Liability Can Follow the Property Into the Hands of a Third Party

Don’t forget – the arm of the IRS is very long, indeed. In order to prevent taxpayers from avoiding their responsibilities to pay tax, the law has developed several theories under which the IRS can satisfy one party’s tax debts by following property that has been transferred by that party to another party. The theories vary, but fall into the general categories of “Nominee Liability”, “Alter-Ego Liability” and “Transferee Liability”. In the case of heirs receiving property from the estate, the unpaid taxes of the decedent might be collectible by the IRS on a theory of Transferee Liability. Special rules impose personal liability against the transferee of an estate in cases when the estate did not pay estate taxes due. A special lien for estate tax automatically arises on the death of the decedent and attaches to property transferred from the estate. The transferee’s liability is generally limited to the fair market value of the property received. The Estate executor will also face fiduciary liability for unpaid taxes if he transfers property before paying the IRS.

Offshore Voluntary Disclosure Program:

So, in order to avoid transferee liability and/or fiduciary liability as well as possible criminal charges a la Henry Selligman and his siblings, the best advice is to come clean very quickly about the decedent’s undisclosed offshore accounts.

FAQ 13 of the OVDP expressly recognizes that entities can enter the OVDP. There are also special OVDP provisions for those who have inherited undisclosed foreign accounts permitting them to qualify for a special reduced “offshore” penalty of 5% (See FAQ 52). A taxpayer can qualify for the 5% penalty if the taxpayer meets all four of the following conditions:

(a) he did not open or cause the account to be opened (unless the bank required that a new account be opened, rather than allowing a change in ownership of an existing account, upon the death of the owner of the account); (b) he must have exercised minimal, infrequent contact with the account, for example, to request the account balance, or update accountholder information such as a change in address, contact person, or email address; (c) he must have, except for a withdrawal closing the account and transferring the funds to an account in the United States, not withdrawn more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (d) can establish that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation).

The Importance of Attorney-Client Privilege

An attorney is not treated the same as an accountant or other type of advisor. A special privilege is accorded when attorneys are consulted. Discussion with legal counsel may be protected by what is called the “attorney-client privilege.” Taxpayers with unreported income or assets must obtain a full understanding of the implications, their options for dealing with the matter and possible penalties under each option. They should discuss the matter with an experienced US tax attorney. This is particularly important if the taxpayer ultimately decides not to make the disclosure to the IRS. In contrast, a consultation with a non-attorney (for example, with the taxpayer’s accountant) is not protected by the privilege. If the IRS discovers the foreign financial account, the taxpayer’s accountant or other non-attorney could become a witness for the IRS against the taxpayer or be required to turn over records and documents. This would not be the case if an attorney had been consulted.

In accordance with Circular 230 Disclosure

Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.

Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.

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