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The Immigration Consequences Counsel Should Understand When Representing a Noncitizen Who is Criminally Prosecuted for Failing to Disclose Foreign Income or Foreign Bank Accounts

The Immigration Consequences Counsel Should Understand When Representing a Noncitizen Who is Criminally Prosecuted for Failing to Disclose Foreign Income or Foreign Bank Accounts

By Anthony Diosdi

The Internal Revenue Service (“IRS”) has been on a hiring spree and is gearing up for a major offensive. There has been a lot of saber rattling coming from the IRS that in the near future there will be a dramatic increase in referrals for criminal prosecution. One area that is always a favorite of the IRS is to go after undisclosed foreign bank accounts and reported foreign income. One group that may be hit particularly by an increase in prosecutions of unreported fotreign income or foreign bank accounts are noncitizens such as green card holders. This article discusses the immigration consequences a nonresident could face if he or she is charged with a tax crime or crimes associated for failing to disclose foreign income and foreign bank accounts. This article goes on to discuss the immigration traps counsel should understand in order to competently represent his or her client.

The Potential Immigration Issues Associated with a Federal Conviction of a Tax Crime

Individuals that are not United States citizens, including those who are permanent residents (green card holders) may be deported from the United States if they are convicted of an “aggravated felony.” An “aggravated felony” is defined as an offense which 1) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or 2) is described in Internal Revenue Code Section 7201 (tax evasion) in which the loss to the government exceeds $10,000.” More importantly, individuals that are not United States citizens, who are convicted of an “aggravated felony” are not eligible for review from deportation or asylum.

In many cases, lawyers representing noncitizens in criminal cases do not have the proper understanding how a conviction or guilty plea of an offense classified as an “aggravated felony” may affect their client’s immigration status. For example, in Padilla v. Kentucky, 130 S Ct. 1473 (2010), a noncitizen was charged with a narcotics offense. The noncitizen was charged with the transportation of marijuana in a Kentucky state court. The noncitizen accepted a plea bargain after the noncitizen’s attorney told the defendant that he did not have to be concerned about his immigration status. However, in reality, the plea bargain rendered the noncitizen subject to deportation with no opportunity for relief.

What is an “Aggravated Felony” for Tax Offense Purposes

In Nijhawan v. Holder, 129 S. Ct 2294, 2300 (2009), the United States Supreme Court discussed whether a defendant’s conviction for conspiracy to commit fraud was an aggravated felony under 8 U.S.C. Section 1101(a)(43)(M)(i). The Supreme Court decided that it was appropriate to examine the specific circumstances surrounding the defendant’s crime to determine the amount of loss to the victim to determine there is an “aggravated felony.”  This means the Immigration Court can look at the statutory language of the offense to determine whether or not it involved “fraud or deceit.” Once it is determined if an offense involved “fraud or deceit,” the next step is to analyze the record of the criminal proceeding to determine whether the offense involved a loss to the government of more than $10,000. 

Applying this statutory interpretation, the United States Supreme Court has unambiguously determined that a conviction under Internal Revenue Code Section 7201 in which a loss to the government exceeds $10,000 is a deportable offense. Internal Revenue Code Section 7201 provides that a defendant may be charged with the willful attempt to evade or defeat the assessment of taxes or the payment of taxes. To establish evasion of assessment of tax, the government must prove that: 1) the defendant committed an affirmative act to defeat or evade tax; 2) there is a material amount of tax due and owing; 3) the defendant acted willfully. Consequently, if a noncitizen is convicted of willfully attempting to evade or defeat the assessment of taxes or the payment of taxes under Section 7201 in which the loss to the government exceeds $10,000, the Immigration Court will determine that the noncitizen committed an “aggravated felony” and the defendant is subject to deportation. 

In Kawashima v. Holder, 565 U.S. 478 (2012), the United States Supreme Court expanded the definition of “aggravated felony” to other tax crimes. The Supreme Court agreed with the Ninth Circuit Court of Appeal and found that the filing of a false return or the willful aiding or assisting in the preparation of a return or other material matter to the IRS under Sections (1) and (2) of Internal Revenue Code Section 7206 involves fraud or deceit “because the provisions require the government to prove either that the defendant ‘willfully’ subscribed to a statement in a tax return he did not believe to be true, or that the defendant ‘willfully’ aided and assisted in the making of a false or fraudulent return.”

Under Internal Revenue Code Section 7206(1), any person who willfully signs and files any return, statement, or other documents that contains a declaration that is under the penalties of perjury, and that he does not believe to be true and correct as to every material matter, is guilty of a felony. Unlike Section 7201, a defendant can be convicted of filing false returns even if no tax is due. However, for purposes of classifying a Section 7201 as an “aggravated felony,” the filing of a false tax return must result in a tax loss to the government of more than $10,000.

Following the Supreme Court’s decision in Kawashima, in the offshore context, the offense of failure to report a foreign bank account on FinCEN Form 114 or FBAR under 31 U.S.C. Section 5322 can also be classified as fraud or deceit for purposes of an “aggravated felony.” This is because the mens rea or criminal intent required for a conviction under Section 5322 is willfulness. If a nonresident is convicted or pleads guilty to a Section 5322 offense, the nonresident will either be guilty or admit to a crime involving the deceitful attempt to hide information from the government. This may amount to an “aggravated felony” as long as the tax loss to the government exceeds $10,000.

How Should Counsel Proceed in Representing a Nonresident in a Foreign Case Involving Unreported Income and/or Undisclosed Foreign Bank Accounts?

The first question counsel should ask when representing a noncitizen in a criminal tax case or an FBAR case is does the loss to the government exceed $10,000. If so, the next question counsel should ask is there tax loss to the government that exceeds $10,000. If there is tax loss to the government which exceeds $10,000 and criminal prosecution has begun, if possible, counsel should attempt to convince the prosecution to stipulate to a tax loss of not more than $10,000. If the prosecution is not willing to stipulate to a tax loss of less than $10,000, defense counsel will face a far more difficult task in representing a noncitizen defendant accused of a crime that can be characterized as a “aggravated felony” and result in deportation.

The lesson learned from Kawashima is simple: counsel must be cognizant of the fact that any federal tax crime involving a tax loss of over $10,000 can be determined to be an “aggravated felony.” In cases where a noncitizen defense has been charged with willfully failing to file a FinCEN 144 or FBAR, defense counsel should attempt to avoid an aggravated felony designation by arguing that the act itself did not cause any tax loss to the government. Counsel should know his or her client and carefully analyze the facts of the case. Only after counsel has loosely examined all the facts and circumstances of the case should counsel begin meaningful negotiations with the prosecution.

Anthony Diosdi is a partner and attorney at Diosdi Ching & Liu, LLP, located in San Francisco, California. Diosdi Ching & Liu, LLP also has offices in San Francisco, California, Pleasanton, California and Fort Lauderdale, Florida. Anthony Diosdi represents clients in tax audits, civil tax litigation, criminal investigations, and voluntary disclosures. Anthony Diosdi has also represented noncitizens in deportation and removal proceedings before the Immigration Court. Anthony Diosdi may be reached at (415) 318-3990 or by email: adiosdi@sftaxcounsel.com

This article is not legal or tax advice. If you are in need of legal or tax advice, you should immediately consult a licensed attorney.