Sept. 18--Ty Warner, the Chicago-area entrepreneur who became a billionaire creating Beanie Babies stuffed plush toys, has been charged with felony tax evasion by federal authorities and has agreed to plead guilty and pay a $53.5 million penalty, federal officials and Warner's attorney said in separate statements Wednesday.
Warner "was charged today with federal tax evasion for allegedly failing to report income he earned in a secret offshore account he held with UBS," the financial services firm based in Switzerland, the U.S. attorney's office in Chicago said.
Warner is scheduled to appear for arraignment and plea at 9:45 a.m. Oct. 2 before U.S. District Judge Charles Kocoras in the Dirksen United States Courthouse on Dearborn Street.
Warner's lawyer, Gregory Scandaglia, confirmed that Warner, the sole owner of Westmont-based toy designer Ty Inc., reached an agreement to resolve an investigation into an overseas account he opened in 1996.
Warner himself traveled to Zurich, Switzerland, in January of that year to open the account, court documents said. When he set up the account, he requested that correspondence related to the account be held by the bank and not mailed elsewhere, documents said.
"This is an unfortunate situation that Mr. Warner has been trying to resolve for several years now, including through an attempt to enroll in the IRS's Offshore Voluntary Disclosure Program in 2009," Scandaglia said. "Mr. Warner accepts full responsibility for his actions with this plea agreement."
Warner, 69, ranks 209th in a recent Forbes ranking of richest Americans. His net worth is estimated at $2.6 billion.
"The charge alleges that Warner went to great lengths to hide from his accountants and the IRS more than $3.1 million in foreign income generated in a secret Swiss account," Gary Shapiro, U.S. attorney for the Northern District of Illinois, said in a statement. He failed to pay taxes of $885,300 for calendar year 2002, court documents said.
In December 2002, Warner transferred the assets in his UBS account to a second Swiss financial institution, when the account had a balance of $93.6 million. The $53 million civil penalty is half of the high balance during the relevant time period.
Federal law requires taxpayers report financial accounts in foreign countries if the total value of the accounts exceeds $10,000 at any time during the calendar year.
Warner also "concealed his name from being listed on the (second) account by holding the account in the name of a purported 'Molani Foundation,'" court documents said.
In 2002, Warner earned about $3.1 million in gross income through investments held in his UBS account, according to the charge. Warner allegedly committed tax evasion for that year by failing to tell his accountants about that income and by failing to report that income or the existence of the UBS account in his 2002 form 1040 filed with the IRS, as well as failing to report that same income on an amended 2002 form 1040 filed in November 2007.
Individual tax returns, forms 1040, are signed under penalties of perjury.
Aside from alleged evasion of taxes, the deliberate failure to file a "Report of Foreign Bank and Financial Accounts," or FBAR, form with the IRS can result in a civil penalty of up to 50 percent of the amount in the account at the time of the violation.
The charge states that Warner failed to pay $885,300 in income taxes for the calendar year 2002. That return also omitted the $3.1 million in UBS income.
"By omitting his UBS income, Warner falsely reported his total income in 2002 was $49.1 million," according to the charge.
Tax evasion carries a maximum penalty of five years in prison and a $250,000 fine. Warner will be arraigned in a federal court on a date yet to be determined.
A defendant convicted of tax offenses also faces mandatory costs of prosecution and remains civilly liable to the government for back taxes, as well as a potential civil fraud penalty of up to 75 percent of the underpayment plus interest. Federal tax law requires U.S. taxpayers pay taxes on all income earned worldwide.
Warner is the second taxpayer charged in federal court in Chicago in connection with an ongoing investigation of U.S. taxpayer clients of Union Bank of Switzerland, better known as UBS, and other overseas banks that hid foreign accounts from the Internal Revenue Service.
In July 2013, the owner of a cemetery monument business in Skokie was sentenced to a year and a day in federal prison for evading more than $1 million in federal taxes on more than $3.3 million in income, including interest on millions of dollars he held in a secret offshore financial account with UBS. Peter Troost, 78, had pleaded guilty in March to the felony charge.
In February 2009, UBS admitted that it helped taxpayers hide accounts from the IRS. As part of the agreement, UBS provided the government with the identities of, and account information for, certain customers.
Ameet Sachdev, Greg Karp, Kathy Bergen and Samantha Bomkamp contributed to this article.
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Original headline: Beanie Baby creator Ty Warner charged with tax evasion
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