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Royce Gracie Charged With Tax Fraud – Why You Should Take Proactive Steps to Report Your Foreign Bank Accounts


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1/11/2016
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If you are a United States Citizen, having an unreported Foreign Bank account can come back to haunt you. Royce Gracie learned this when he and his wife received a Petition to Enforce Summons in January 2014. The Gracie’s were summoned to appear before the IRS on December 31, 2012 and produce information relating to foreign bank and foreign investment activities. The Gracie’s failed to appear and resultantly was served with a copy of the Petition to Enforce the Summons.

According to the Petition, the Revenue Agent assigned to the case to “examine potential international tax issues relating to the Gracie’s’ federal income returns” found: “To date, my investigation has revealed that during the years 2008 - 2011: 1) the [Gracie’s] had signature authority over an [sic] foreign bank account at HSBC bank in Switzerland; 2) the [Gracie’s] had signature authority over a foreign bank account at Caixa Penedes bank in Spain; 3) the [Gracie’s] had a foreign bank account at First Gulf Bank in Abu Dhabi; and, 4) the [Gracie’s] did not disclose the full extent of their foreign bank account activities on their U.S. tax returns (Forms 1040) as required by law.”

The Revenue Officer further added: “I have determined that during the years 2007 - 2011 over $3M was wired from foreign banks accounts into U.S. bank accounts on behalf of the [Gracie’s]. These funds were used to pay for, among other things, renovations to their vacation property in Mammoth lakes, California, and personal credit card debts.

In 2008, approximately $350,000 was wired from offshore accounts towards the purchase of the [Gracie’s'] residence in Palos Verdes, California. In 2010, the [Gracie’s] purchased real estate in California. $497,972 was wired from an offshore account to make that purchase.

For the years 2008 - 2011, the [Gracie’s] have filed federal individual tax returns showing minimal taxable income. They claimed a $4000 child tax credit in each of the years under investigation. They claimed an earned income credit in 2009 and 2010.”

As a result of the investigation, the IRS concluded that the Gracie’s failure to report their foreign income resulted in an increase in their tax liability of $1,149,949.25 including the IRC Sec. 6663 Civil Fraud Penalty.

In support of the Sec. 6663 penalty, the IRS alleged:

“(1) [The Gracie’s] opened an account at HSBC Private Bank SA ("HSBC") in Geneva, Switzerland on April 9, 2002.

(2) For tax years 2007 through 2009, the account held approximately $2 million USD.

(3) On August 11, 2009, $1,456,038 was transferred from the HSBC account to The First Gulf Bank in the United Arab Emirates to open an account there.

(4) The HSBC account was closed in 2009.

(5) [The Gracie’s] also maintain an account at Caixa Penedes Bank in Spain.

(6) The account at Caixa Penedes was opened in 2004.

(7) In 2007, the highest balance in the Caxia Penedes [sic] account was $235,726.00.

(8) Despite numerous requests by [the IRS], [the Gracie’s] have refused to disclose the source of the funds in these accounts.

(9) The service has determined that the funds in these accounts were earned by Mr. Gracie and that the income was not reported on any Forms 1040 or Forms 1120 submitted by [the Gracie’s] or Khonkhor. (Emphasis in original)”

IRS Foreign income probes have become more and more common. If you have a foreign bank account, it may be best to consider filing an Offshore Voluntary Disclosure to limit the potential damages. 



Category: Tax Law

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