Our criminal tax defense lawyers explain how Pursley violated the law, potential consequences of his actions, and perhaps most critically, what to do should you find yourself in a similar tax situation.

The following video explains the exposure surrounding undisclosed foreign bank accounts coupled with unreported offshore income.

Conspiracy to Conceal $18 Million Overseas Leads to Tax Evasion Charges for Houston Lawyer

The indictment revealed on September 20 recreates an elaborate chain of actions undertaken by Pursley and his co-conspirator for the purpose of concealing wealth and avoiding tax liabilities – violating, of course, several laws in the process.

To quote the indictment, “It was the purpose and object of the conspiracy… to unjustly enrich Pursley and Co-Conspirator 1 by evading the assessment and payment of federal income taxes to the IRS, namely, taxes due on more than $18 million in income… parked offshore in the Isle of Man,” a small island nation located in the Irish Sea.

Incidentally, the Isle of Man happens to be a well-known tax haven, making it an attractive destination for both individuals and business entities from a tax and financial standpoint.

However, while tax havens like the Isle of Man are perhaps more likely to attract U.S. taxpayers, they are not the only countries where U.S. citizens’ funds are subject to foreign income reporting laws.

On the contrary, citizens must report and pay taxes on offshore income no matter where overseas it is stored – and thanks to a law known as FATCA, which our international tax attorneys will discuss in just a few moments, American customers should not count on foreign banks to protect their information from the U.S. government, either.

According to a press release from the Department of Justice (DOJ), the scheme unfurled when Pursley and his co-conspirator took steps to repatriate the funds from the Isle of Man, where they were being stored in the co-conspirator’s business account, back into the United States.

Pursley – who was aware that the money and associated account had never been disclosed to the Internal Revenue Service – devised a scam in which “the untaxed funds were made to appear to be stock purchases in United States corporations owned and controlled by Pursley and his co-conspirator.”

For his assistance in planning and executing this scam, Pursley was rewarded with “more than $4.8 million and an ownership interest in the co-conspirator’s” company.

By furthering the scheme, the indictment alleges, Pursley “did knowingly and willfully conspire… to defraud the United States by impeding, [and] impairing… the lawful… functions of the Internal Revenue Service” (i.e. administration and collection of taxes).

This type of conspiracy – that is, a conspiracy-oriented toward “impeding and impairing” governmental duties – is known as a “Klein conspiracy.” Because proving a Klein conspiracy is often simpler and more pragmatic for the government than proving tax fraud, Klein conspiracies are frequently alleged by prosecutors in criminal tax cases.

However, as you may recall from the beginning of this article, conspiracy was only one of the charges against Pursley. Most of the charges against the defendant involved the alleged commission of tax evasion, which is banned under 26 U.S. Code § 7201 (attempt to evade or defeat tax).

How did Pursley violate federal tax laws?

Worldwide Income Reporting Requirements: FBAR, Form 8938, Form 1040

The answer has to do with the law we mentioned earlier, FATCA: an acronym which stands for the “Foreign Account Tax Compliance Act.” The United States requires all U.S. persons to report their offshore income, regardless of where the person (or company) physically resides. That means a Texas resident storing funds on the Isle of Man – or anywhere else outside the U.S. – would need to report the foreign income to the IRS.

This is accomplished by timely and electronically filing a tax form known as FinCEN Form 114 or the “FBAR” (Foreign Bank Account Report). In addition, taxpayers need to indicate worldwide income on their federal tax returns at Line 21, which asks about “Other Income.” Some of the same taxpayers may also need to file Form 8938 (Statement of Specified Foreign Financial Assets), a requirement under FATCA – which creates stiff penalties for banks that conceal information about U.S. customers from the IRS.

Due to these penalties, foreign banking institutions are likely to turn over account information to the IRS. That means U.S. customers should proactively explore ways of coming forward – before the bank beats them to it. If, for instance, you have received a FATCA letter from your bank, you should speak with an experienced FBAR lawyer immediately about your safest disclosure options.

Failure to file an FBAR, file Form 8938, and/or disclose foreign income on other tax forms can lead to immense penalties, with potential for criminal prosecution if the failure to report was willful. That being said, not all international taxpayers will be subject to these reporting requirements, as the aggregate funds must currently meet or have previously met specific monetary thresholds, namely $10,000 or $50,000, to be deemed reportable. Other exceptions may also apply, depending on the circumstances.

Pursley faces a sentence of up to five years in prison for each count of tax evasion, and up to five years in prison for the count of conspiracy. He may also be ordered to complete a period of supervised release and pay assorted fines and restitution.