A Boston venture capitalist and director at the Boston Private Bank and Trust Company has been charged with failing to report his foreign bank account and income to the Treasury Department.
Michael Schiavo, 53, of Westford, Mass., held an account in his name at HSBC Bank Bermuda, formerly known as the Bank of Bermuda, from 2003 to 2008, according to a criminal information and plea agreement announced by the Justice Department on Thursday.
In 2006, with the help of his business partner Peter Schober, Schiavo arranged to have income from a venture capital investment directed to Schober’s secret account at UBS AG in Switzerland. From there, Schiavo’s share of the investment, $99,273, was wired to his HSBC Bank Bermuda account.
Schiavo chose not to report the payment, or the taxable interest income that accrued in his HSBC Bank Bermuda account, to the IRS, depriving the IRS out of $40,624 in taxes.
Following widespread media coverage of UBS’s disclosure to the IRS of account records for undeclared accounts held by U.S. taxpayers and the IRS’s Voluntary Disclosure Program, on Oct. 6, 2009, Schiavo made a “silent disclosure” by preparing and filing foreign bank account reports, or FBARs, and amended Forms 1040 for tax years 2003 to 2008, in which he reported the existence of his previously undeclared account at HSBC Bank Bermuda.
Taxpayers who have a financial interest in, or signature authority over, one or more financial accounts in a foreign country with an aggregate value of more than $10,000 at any time during a particular year are required to file with a Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1, also known as the FBAR, with the Treasury Department.
The FBAR for the applicable year is due by June 30 of the following year. Schiavo made the filings notwithstanding the availability of the IRS’s Offshore Voluntary Disclosure Program at the time.
The Offshore Voluntary Disclosure Program was a program administered by the IRS that was intended to serve as a vehicle for United States taxpayers to attempt to avoid criminal prosecution by disclosing their previously undeclared offshore accounts and paying tax on the income earned in those accounts. On its Web site, the IRS strongly encourages taxpayers to come forward under the Offshore Voluntary Disclosure Program and warns them that taxpayers who instead make silent disclosures risk being criminally prosecuted for all applicable years.
The IRS has opened a newer voluntary disclosure program since the close of the last program. It has stiffer penalties, but no jail time.
According to the criminal information and plea agreement, Schiavo also admitted that for tax years 2003 through 2008, he willfully failed to file FBARs with the Treasury Department and failed to disclose that he had an interest in a financial account in HSBC Bank Bermuda.
He further admitted that for tax years 2003 through 2008, he prepared, signed under penalties of perjury, and filed false individual income tax returns with the IRS that falsely represented that he did not have an interest in any foreign financial accounts.
As part of the plea agreement, Schiavo agreed to pay a civil money penalty of $76,283, half the value of high balance of the HSBC Bank of Bermuda account, for failing to file the FBAR. However, he still faces up to five years in prison, followed by three years of supervised release and a $250,000 fine. Schober was charged separately with failing to disclose his secret UBS AG bank account and is awaiting sentencing.
