Nominee Bank Account Tax Evasion

A nominee account is a financial account legally registered under someone else’s name but used and controlled by the actual beneficiary. These accounts are often used to obscure the true ownership of assets. The key characteristic of a nominee arrangement is the discrepancy between the legal title holder of the account and the individual who maintains beneficial control over the funds and transactions. Such accounts are frequently employed as a fraudulent tool to bypass mandatory tax disclosure requirements.

The willful use of nominee accounts to hide taxable income or assets is a direct indicator of fraudulent intent, triggering several serious legal violations.

• Filing false tax returns: Deliberately omitting income or assets controlled via a nominee account from a tax return constitutes filing a document believed to be untrue.
• Willful failure to report income: The intentional non-disclosure of revenue streams deposited into or managed through a third-party account is a criminal offense.
• Fraudulent concealment of taxable assets: Actively hiding the true ownership of funds or property using a nominee structure is a core act of evasion.
• Misrepresentation to financial institutions or tax agencies: Providing misleading information about the true beneficial owner of an account violates disclosure rules and can lead to charges for false statements.

The District of Columbia Office of Tax and Revenue (OTR) imposes civil penalties for underreporting income, failing to file tax returns, or submitting false information. Nominee accounts may be treated as tools of concealment, leading to assessments and penalties. Civil fraud penalties imposed by the OTR can be substantial, often equaling a high percentage of the tax underpayment, alongside the original tax due and accrued interest. These actions can be initiated independently of or in coordination with federal investigations.

Under the Internal Revenue Code (IRC $7201, $7206), intentionally using nominee accounts to mislead the IRS constitutes tax evasion and filing a false statement. These offenses are punishable by fines and imprisonment. Section 7201 addresses the felony of willful tax evasion, which the use of a nominee account is often cited as an "affirmative act" in furtherance of the evasion plan. Furthermore, $7206 targets those who make or subscribe to any return or document that contains a written declaration that it is made under the penalties of perjury, which they do not believe to be true and correct as to every material matter.

Financial institutions in Washington D.C. are required to verify customer identity and report suspicious activities. Use of nominee accounts often triggers Suspicious Activity Reports (SARs), which are shared with the IRS and law enforcement. The BSA establishes the legal framework for "know your customer" requirements, obligating banks to identify the true beneficial owners of accounts and to detect attempts to use the financial system for illicit purposes, such as tax evasion through nominee structures.

Anti-Money Laundering (AML) provisions allow for criminal prosecution of individuals who engage in financial structuring or concealment of ownership. IRS investigations may lead to criminal referrals to the U.S. Attorney for prosecution in federal court. Engaging in transactions designed to hide the source or ownership of funds using a nominee account can be directly prosecuted under money laundering statutes, even when the underlying offense is tax evasion. These referrals indicate that the fraudulent activity is deemed significant enough to warrant federal felony charges.

Upon detection of nominee accounts used for evasion, authorities may seize funds, impose back taxes with interest, and assess civil fraud penalties. The IRS and D.C. authorities can place liens on all of a taxpayer’s property and levy bank accounts, wages, and other assets, including those held in the name of a nominee, once it is proven that the assets belong to the delinquent taxpayer. Civil fraud penalties alone can reach 75% of the underpayment attributed to fraud, in addition to the taxes and interest due.

Criminal consequences for nominee account-related tax evasion are extremely serious and include:

If you are under investigation or suspect exposure to liability for nominee account use, it is essential to seek legal representation. An experienced tax attorney can analyze the specifics of the nominee arrangement, protect constitutional rights during investigation, and work to negotiate a settlement, seeking to advise on strategies that address potential criminal and civil exposure. Understanding the legal boundaries and properly disclosing all financial interests is the only way to protect individuals and entities from the serious legal consequences of tax fraud in Washington D.C.