"There was an announcement on television that you could report a million dollars. I was not sure if it was voluntary disclosure or due disclosure; my wife and I decided to report," a tax evasion suspect told Israel Tax Authority investigators by way of explanation as to why he decided to report the funds in 2015 - after a decade of hiding a sizable bank account in Switzerland.
The Israel Tax Authority voluntary disclosure policy - in which taxpayers can report previously-hidden capital without facing prosecution - is expected to end in two and a half months after a prolonged extension.
The program has received 4,300 requests for disclosure and added NIS 16 billion to the assets reported to the Tax Authority. The authority collected half a billion shekels in taxes from the previously unreported capital.
It turns out, however, that some taxpayers did not properly understand how to report the hidden assets under the terms of the program and avoid criminal charges.
Nahum Weinstein is one example. The former diamond dealer was arrested by the Tax Authority this week on suspicion of evading taxes on millions of shekel in income and failing to report an account in his name at UBS in Switzerland - which he only declared as part of a capital declaration last July.
Is Weinstein a naïve man who watched an advert and decided to report his foreign funds and pay taxes - or is he a sophisticated tax evasion artist?
If you ask Weinstein, he says he was unaware of his responsibility to report and acted in good faith once he realized his error - but the details of the tale are a bit more complex. Weinstein has an accountant who claims he was constantly worried he would be caught by the Tax Authority; he even sought the counsel of tax expert Tali Yaron-Eldar, a former income tax commissioner who provided him with a full explanation of the situation.
Unexpected report
Weinstein is retired and lives in Ra’anana. Before his retirement, he was a diamond merchant. In the application for an arrest warrant filed at the Magistrates Court, the investigators said a Dan Metropolitan tax assessor requested a capital declaration form for 2012 from Weinstein a year ago; last July, when he filed the document, was the first time he reported the UBS bank account - with NIS 3.4 million.
But the Tax Authority believes the declaration was only a partial report of his capital.
A few weeks later, Weinstein - through his accountant - unexpectedly filed amended reports for 2012 and 2013, in which he acknowledged his passive income from the Swiss bank account totaling NIS 1.6 million since 2005.
After receiving the information, the Tax Authority launched a covert investigation into the matter, which started by determining whether Weinstein filed a request for voluntary disclosure. When investigators discovered he had failed to file such a request, they began an open investigation into his tax evasion, conducted a search of his home, seized documents, and recorded testimony.
During questioning, Weinstein implicated himself; when he was asked whether he reported his income in Israel and abroad in real time - he answered, "No." He also admitted to not reporting income from dividends and interest on securities until August 2015, when he filed the initial report exposing the Swiss account.
The odd conduct of the suspect, who out of the blue decided to report income of NIS 1.6 million after years, led the investigators to ponder why he failed to report it at the time and why he chose to reveal the income now.
Weinstein originally said, "I did not know I needed to report income." He even added that he did not tell the accountant about the foreign bank account. "The accountant did not know of the account. If he had known I had an account and needed to pay taxes, he would have told me: ‘Nahum, pay.’"
Weinstein admitted the accountant had asked him for documentation of foreign accounts - and yet he never provided them. At this point in the questioning, the investigators prodded: "You did not file documents of income from an overseas bank account and did not tell your accountant in real time of the existence of this, as part of an effort to avoid taxes - your response?"
Weinstein responded without missing a beat: "I am not avoiding paying taxes because I have been paying taxes my whole life."
"I don’t know what to say"
The investigators were bothered by the question why Weinstein suddenly remembered the obligation to report, to which the suspect also had an answer: he saw a television commercial on the Tax Authority voluntary disclosure program and decided - in agreement with his wife - to report.
"Then why didn’t you file for voluntary disclosure," asked the investigator.
"I don’t know how to fill out forms, that’s why I pay someone to take care of it. Even the income tax checks weren’t filled out by me."
The investigation discovered that Weinstein consulted with tax expert Yaron-Eldar to explore the possibility of filing a voluntary disclosure request, but he apparently never sent her the overseas documents she requested in order to petition the Tax Authority in his name.
"She told me I needed to send her all the documents from abroad," said Weinstein during questioning.
When the accountant was questioned at the Tax Authority, he was surprised by the claim that Weinstein did not know he needed to report income from overseas banks. "It is unlikely that Nahum didn’t know," he said.
But Weinstein was left without much of a response when the investigator asked why he never submitted the paperwork for voluntary disclosure despite consulting with experts on the issue: "I don’t know what to say."
Meanwhile, a Tel Aviv Magistrate Court judge accepted a Tax Authority request to release Weinstein from custody.
Adv. Rany Schwarts, who represents the suspect, said: "Nahum Weinstein acted legally and did not violate any laws. He reported his income and paid the tax liability of his own volition; the conduct of the Tax Authority is regretable. We will present our case to the relevant authorities."
Published by Globes [online], Israel business news - www.globes-online.com - on February 16, 2016
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