The Account Before the Bank List Arrives

Question 35: The Account Before the Bank List Arrives

Your role

You represent Priya Den in the fictional Republic of Selwick. Priya failed to report income and an offshore account for three years. A bank has warned that customer identities will soon be transferred to Selwick's tax authority. Priya must choose among a voluntary-disclosure program, a nonwillful procedure, quiet amended returns, or no action.

Governing law

Assume the following Selwick rules apply:

1. Unreported foreign income is subject to back tax and stated interest. A willful filing may also support civil-fraud, offshore-account, false-statement, and criminal charges.

2. Before the authority contacts the taxpayer or receives the taxpayer's identity from a third party, the voluntary-disclosure program requires truthful amended returns, full account disclosure, tax, interest, a 20 percent accuracy penalty on unpaid tax, and an offshore penalty equal to 18 percent of the highest aggregate account balance. A compliant participant will not be referred for criminal prosecution for the disclosed conduct.

3. Program eligibility ends when the authority sends contact or receives the taxpayer's identity, even if the taxpayer has not yet read the contact.

4. A nonwillful procedure requires tax, interest, and a 5 percent offshore penalty, plus a signed certification that the failure resulted from negligence, mistake, or good-faith misunderstanding rather than a voluntary, intentional violation of a known duty.

5. A knowingly false nonwillful certification is a separate false-statement offense and does not protect against criminal referral.

6. Outside either procedure, detection permits a 75 percent civil-fraud penalty on unpaid tax and a 40 percent penalty on the highest account balance, in addition to tax and interest.

7. Quiet amended returns do not create immunity. They may be considered cooperation, but they may also identify the taxpayer for examination.

8. For this counseling exercise, use only the supplied detection and referral probabilities. Do not substitute other percentages or claim that any probability is certain.

9. Expected monetary cost is one input. Counsel must also explain conditional criminal risk, eligibility timing, truthfulness, liquidity, and the client's risk tolerance.

Facts

Priya held an account at Larkspur Private Bank. Her highest aggregate balance was $600,000. She omitted the following foreign income:

• 2022: $80,000.
• 2023: $120,000.
• 2024: $100,000.

Use a 30 percent tax rate for every year. Total stated interest through the payment date is $12,000.

Priya's account-opening file contains a form asking whether she was a Selwick taxpayer. She checked "no" despite having filed Selwick returns for 15 years. Her banker later emailed:

"Keep correspondence off your home address and the account should stay outside Selwick reporting."

Priya replied:

"That is the point. I do not want this on the Selwick forms."

Her prior accountant asked annually whether she had foreign accounts. Priya answered "no." She now says she knew tax was probably due but believed the bank would not report her.

Larkspur has told Priya that her account is included in a customer batch scheduled for transfer in twelve days. The transfer could occur earlier. No authority contact has yet occurred.

For this matter, use the following supplied outcome data:

• Voluntary disclosure before disqualification: fixed monetary cost under rule 2 and no criminal referral for the disclosed conduct.
• Quiet amended returns: 70 percent probability of detection and full rule 6 civil treatment; 30 percent probability that the authority accepts tax and interest without additional penalty. Conditional on detection, there is an 18 percent probability of criminal referral.
• No action during the next two years: 60 percent probability of detection and full rule 6 civil treatment; 40 percent probability of no collection during that two-year window. Conditional on detection, there is a 30 percent probability of criminal referral.

Priya has $260,000 in liquid funds and can borrow against a domestic investment account. She asks whether counsel can describe her conduct as nonwillful, whether the program is "too expensive," and whether waiting has a lower expected monetary cost.

Assignment

Counsel Priya on:

• Back tax and interest.
• The exact voluntary-disclosure cost.
• The exact nonwillful-procedure cost and whether the required certification is supportable.
• The full detected civil cost outside a program.
• The expected monetary cost of quiet amended returns using the supplied probabilities.
• The expected two-year monetary cost of no action using the supplied probabilities.
• Conditional criminal-referral risk for each path.
• The twelve-day eligibility risk and the bank-transfer facts.
• Liquidity and payment planning.
• The concrete course Priya should take, without inventing probabilities or softening the willfulness evidence.

Q35 key (Account Before Bank List Arrives)

1. Unreported income is $300,000. At 30 percent, back tax is $90,000; with $12,000 interest, the base is $102,000. Missed: every path begins from the wrong amount.
2. Voluntary disclosure adds a 20 percent tax penalty of $18,000 and an 18 percent balance penalty of $108,000. Total is $228,000, with no criminal referral for disclosed conduct. Missed: the program is priced incorrectly.
3. The nonwillful procedure would cost $90,000 + $12,000 + $30,000 = $132,000, but Priya cannot truthfully certify nonwillfulness given the false taxpayer form, banker exchange, annual denials, and admitted knowledge. Missed: counsel recommends a cheaper path that creates a separate false-statement offense.
4. Full detected civil cost outside a program is $90,000 tax + $12,000 interest + $67,500 fraud penalty + $240,000 offshore penalty = $409,500. Missed: the downside is understated by hundreds of thousands.
5. Quiet-return expected monetary cost is 0.70 x $409,500 + 0.30 x $102,000 = $317,250. Conditional criminal-referral probability is 18 percent if detected, or 12.6 percent unconditional under the supplied branch probabilities. Missed: quiet filing is presented as amnesty.
6. No-action expected two-year monetary cost is 0.60 x $409,500 = $245,700. Conditional referral is 30 percent if detected, or 18 percent unconditional under the supplied branches. Its monetary expectation is lower than quiet filing but $17,700 higher than the $228,000 program. Missed: arithmetic reverses the actual comparison or ignores the criminal tail.
7. Eligibility can vanish before twelve days if the bank transmits early. Waiting has asymmetric downside because contact or identity transfer permanently closes the no-referral path. Missed: the client treats the stated schedule as a guaranteed grace period.
8. Recommend immediate truthful voluntary disclosure, with rapid financing for the $228,000 fixed cost and complete account reconstruction. Do not use the nonwillful certification or quiet returns. Missed: Priya trades a fixed civil resolution for greater expected cost and meaningful criminal risk.