Participants in the Professional Benefits Trust (“PBT”) may be in danger of having to pay the United States Treasury 50% of their assets in penalties for each year of participation in PBT. The assets of the purported welfare benefit plan were moved off shore and deposited into the Mavin foreign insurance company and into Acadia annuities. The Department of Justice has sued promoter Tracy Sunderlage, Mavin LLC and others in federal court in the Northern District of Illinois, claiming the PBT/Mavin/Acadia scheme constitutes an off-shore income tax scam. Those who chose to continue in the plan after 2004 and allowed the plan assets to be moved off shore may become targets for penalties.
On July 13, 2011, the DOJ filed U.S. v. Sunderlage, et al. The Complaint seeks to enjoin the activities of the owners, organizers and promoters of the PBT/Mavin/Acadia transaction. It also seeks to acquire information about taxpayers who are participating in the Mavin and Acadia off-shore transactions. Once the government acquires the participant list, the IRS will likely commence enforcement activities against the participants on the list.
The vast majority of the participants in the PBT/Mavin/Acadia transactions do not realize the investment in “welfare benefits” actually constitutes an interest in a foreign account that obligated them to file an “FBAR” (or foreign bank account report) every year since the “welfare plan” and its investments left the U.S. The civil penalties for failing to file the FBAR can amount to 50% of the aggregate investment value every year. The criminal penalties for willful failing to file FBARs are up to ten years in prison and $500,000 in fines. These penalties are in addition to the other potentially applicable penalties (e.g., filing a fraudulent income tax return; failing to disclose a listed transaction; and failing to file the proper income tax returns relating to ownership or interest in foreign entities or trusts). The aggregate value of taxes and penalties easily may exceed the value of the investment held off shore.
The FBAR rules apply to all welfare and pension benefit plans that hold direct foreign investments or hold investments in off-shore trusts. The design of the plans dictates whether the trustee, individual plan committee members or plan participants have an FBAR reporting obligation. Reporting obligations commenced in 2003, requiring FBAR filings annually at the end of June.
Any potential penalties may be drastically reduced under the IRS voluntary disclosure program available to FBAR non-filers. However, the August 31, 2011, filing deadline is fast approaching. Participants in welfare benefit plans that have moved assets off shore should contact legal counsel and investigate the voluntary disclosure program.