— U.S. Citizen Abroad (@USCitizenAbroad) June 14, 2020
This is Part 8 of my series on US extraditions. In Part 7 I discussed the expansion of the range of crimes for which the United States is seeking extradition. I suggested that extradition for tax and form crimes was (at the very least) possible (although I think at the present time unlikely). But “unlikely” does not mean impossible. The purpose of this post is to describe a case where the United States is seeking extradition of a former US citizen for reasons related to the expatriation process.
The previous posts in the extradition series are:
Part A – The facts as alleged
Who is Mr. Tinkov?
— U.S. Citizen Abroad (@USCitizenAbroad) June 14, 2020
Notably Mr. Tinkov was apparently not living in the United States but was living in London, UK. The evidence suggests that he had not lived in the United States for many years.
Part B – What was Mr. Tinkov’s alleged crime?
According to the indictment, Tinkov was the chairman and beneficial majority shareholder of Tinkoff Credit Systems (TCS), a branchless online bank that provided its customers with financial and bank services. On October 25, 2013, TCS held its initial public offering (“IPO”) on the London Stock Exchange. TCS’s per share price opened at $17.50. The indictment states s that of TCS’s IPO, Tinkov owned, through multiple British Virgin Islands entities, more than 92 million TCS shares, making him the beneficial owner of more than $1 billion worth of TCS shares. The indictment alleges that three days later, on October 28, 2013, Tinkov, a Russian national, renounced his U.S. citizenship. Tinkov’s decision to renounce his citizenship was a taxable event requiring him to report to the IRS the constructive sale of his worldwide assets, report the gain on the constructive sale of those assets to the IRS, and pay tax on such gain to the IRS. According to the indictment, despite knowing he beneficially owned more than $1 billion of TCS shares at the time of his expatriation, Tinkov filed a 2013 U.S. Individual Income Tax Return with the IRS that reported total income of less than $206,000. In addition, Tinkov filed a 2013 Initial and Annual Expatriation Statement reporting his net worth was $300,000. The indictment charges Tinkov with two counts of tax fraud, in violation of 26 U.S.C. § 7206(1).
Part C – 26 U.S.C. § 7206(1) – An introductory legal analysis
The actual charges are two violations of 26 U.S.C. § 7206(1) – which are “form crime” violations and NOT tax evasion violations.
Notice that Mr. Tinkov is not alleged to own the shares directly. Rather he is alleged to own the entities which own the shares.
Internal Revenue Code, § 7206. Fraud And False Statements
I.R.C. § 7206(1) Declaration Under Penalties Of Perjury — Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; or
A good background discussion, unpacking the elements of this offence is here.
The actual charges are based on the false statements and NOT on the evasion of tax.
The two allegations of “Fraud and False Statements” are based on:
1. Signing a tax return that falsely omitted income from his 2013 tax return. The allegation is that because “Tinkov’s decision to renounce his citizenship was a taxable event”, resulting in the “constructive” sale of his property, that he failed to disclose the gains from the sale of that property; and
2. Signing a Form 8854 that falsely understated his net worth.
Interestingly the government restricted the charges to Fraud And False Statements.
Why was there no charge of actual tax evasion?
Theory 1: An excellent discussion of the charges from US tax lawyer Patrick Martin speculates that:
There is important case law that supports the argument that the government cannot impose taxation until an actual sale or exchange of property occurs. For an excellent review of the 1920 U.S. Supreme Court’s decision of Eisner v. Macomber, see the article prepared by Professor Henry Ordower at Saint Louis University – School of Law –
The Expatriation Tax, Deferrals, Mark to Market, the Macomber Conundrum and Doubtful Constitutionality
Pittsburgh Tax Review, Vol. 15, No. 1, 2017, Saint Louis U. Legal Studies Research Paper No. 2018-3
Maybe the U.S. Attorney’s office did not charge tax evasion ((26 U.S.C. § 7201) in the Tinkov case, because of their concerns that the “mark to market” tax imposed by statute may not even be Constitutional? Maybe they did not want to try to pursue a criminal charge on a tax, the very essence of it, which could be challenged by applying the realization principles set forth by the U.S. Supreme Court?
Hmm….. Very interesting. Is all or part of Section 877A unconstitutional?
Theory 2: Another possible reason for charging 7206(1) …
I suspect that a more likely reason for charging “Fraud And False Statements” was to make the process of extradition less contentious. The Meng extradition was based on fraud and not on violations of sanctions against Iran. The Tikov extradition is based on fraud and NOT on evading the Exit Tax. In both cases the United States is basing the charge on what appears to be the easiest avenue for extradition.
Part D – The extradition request
The advantages of London …
They say that London is the divorce capital of the world – if you want a good divorce settlement, use the London courts. (If you are a wealthy individual who is married, avoid London.)
For the United States, if you want to extradite somebody to the USA, consider the UK. After all, the UK US extradition treaty in its plains terms makes extradition from the UK relatively easy. (This severely diminishes the value of the UK as a place to reside. Residency by investment experts take note.)
The next court date is apparently July 13, 2020. Unlike Julian Assange, Mr. Tinkov (while dealing with his luekemia) is (like Meng Wanzhou) apparently living in comfortable quarters.
Part E – What is the moral of the story?
This is an indictment and extradition request based on “form crimes. It warns that:
Thou shalt NOT file false forms!
What does it mean for the long run?
It’s too early to tell. Most people will ignore this. Some people will rationalize that “Well, he was rich, so he deserves this”. Rational people will take careful note and consider the possibility of this becoming more common.
I suspect that Oleg Tinkov thinks that naturalizing as a US citizen was the worst decision he ever made!