Hiding Foreign Assets at Expatriation (U.S. v Tinkvov)

Hiding Foreign Assets at Expatriation (U.S. v Tinkvov)

Hiding Foreign Assets at Expatriation (U.S. v Tinkov)

U.S. v Tinkov & the Hiding of Foreign Assets at Expatriation: With the recent political unrest in the U.S. getting worse by the day, more people than ever are considering expatriation from the U.S. By way of brief background, expatriation is the process of relinquishing long-term Legal Permanent Resident status (aka “Long-Term Resident” or LTR) or renouncing citizenship.

When an expatriate is a covered expatriate, they may have to pay an exit tax to the U.S. government at the time of expatriation.

For some taxpayers the exit tax can be monstrous, and it may tempt an expatriate to want to hide their assets at the time of expatriationbut this is not a good strategy, as is the case with Mr. Oleg Tinkov.

Instead of properly filing form 8854 and detailing his extensive unrealized capital gain, the U.S. government alleges that Mr. Tinkov artificially deflated his total income and net-worth — and misrepresented the value of his income and assets.

Let’s explore the case of U.S. v. Tinkov and the indictment against him.

U.S. v. Oleg Tinkov (Case: CR 19 489)

Mr. Tinkov was a very successful businessman.

He was a naturalized U.S. citizen who was originally from Russia.

Mr. Tinkov was the owner of an online bank that operated through a maze of holding companies. The maze involved Russian entities, multiple BVIs (British Virgin Islands) and more.

In 2013, the institution held and IPO, and Mr. Tinkov’s shares were estimated at $1 Billion.

Since Mr. Tinkov was a U.S. Citizen, he was subject to the Covered Expatriate analysis.

And, because Mr. Tinkov was worth a $1 Billion with significant unrealized capital gain, it was safe to say he would presumably have had a pretty heavy exit tax.

When it came time to file his final tax return, Mr. Tinkov, claimed a few hundred thousand in earnings, and sough to circumvent the exit tax by deflating his assets, income and unrealized gain.

The U.S. caught on, and now he is being indicted for tax fraud.

Department of Justice Press Release

As provided by the Department of Justice:

“Oleg Tinkov, the founder of a Russian bank, was arrested in London in connection with an indictment charging him with filing false tax returns, announced U.S. Attorney David L. Anderson, Principle Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division, and Internal Revenue Service (IRS) Criminal Investigation, Special Agent in Charge Kareem Carter.  The indictment issued Sept. 26, 2019, by a federal grand jury, was unsealed following yesterday’s arrest. 

According to the indictment, Tinkov was the chairman and beneficial majority shareholder of Tinkoff Credit Systems (TCS), a branchless online bank that provided its customers with financial and bank services.  On October 25, 2013, TCS held its initial public offering (“IPO”) on the London Stock Exchange.  TCS’s per share price opened at $17.50.  The indictment states s that of TCS’s IPO, Tinkov owned, through multiple British Virgin Islands entities, more than 92 million TCS shares, making him the beneficial owner of more than $1 billion worth of TCS shares. 

The indictment alleges that three days later, on October 28, 2013, Tinkov, a Russian national, renounced his U.S. citizenship.  Tinkov’s decision to renounce his citizenship was a taxable event requiring him to report to the IRS the constructive sale of his worldwide assets, report the gain on the constructive sale of those assets to the IRS, and pay tax on such gain to the IRS. 

According to the indictment, despite knowing he beneficially owned more than $1 billion of TCS shares at the time of his expatriation, Tinkov filed a 2013 U.S. Individual Income Tax Return with the IRS that reported total income of less than $206,000. 

In addition, Tinkov filed a 2013 Initial and Annual Expatriation Statement reporting his net worth was $300,000.  The indictment charges Tinkov with two counts of tax fraud, in violation of 26 U.S.C. § 7206(1). 

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt. If convicted, the defendant faces a maximum sentence of three years in prison and a fine of $250,000 for each count.  He also faces a period of supervised release, restitution, and monetary penalties. 

However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.  The United States is seeking Tinkov’s extradition from the United Kingdom.

Assistant U.S. Attorneys Michelle J. Kane and Katherine Lloyd-Lovett and Trial Attorney Christopher Strauss of the U.S. Department of Justice Tax Division are prosecuting the case with the assistance of Katie Turner and Rebecca Shelton.  The prosecution is the result of an investigation by the Internal Revenue Service, Criminal Investigation. 

The Criminal Division’s Office of International Affairs of the Justice Department is assisting with the extradition.”

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