Due Diligence

by Brian Mahany

Switzerland’s oldest private bank appeared in a Manhattan federal courtroom yesterday through one of its managing directors and pleaded guilty to helping Americans hide offshore accounts from the IRS. The United States has pursued other foreign banks but never has it actually indicted a bank. As part of the guilty plea, Wegelin agreed to pay $74 million in restitution, fines and civil forfeitures. It also is cooperating with the IRS and identifying U.S. taxpayers with Swiss accounts.

Prosecutors say that Wegelin made a conscious decision to seek Americans hoping to hide their money in the wake of the widespread media reports about the investigation of UBS bank in 2008 and 2009. They say that Wegelin bankers told American depositors that there accounts would not be disclosed.

Unlike UBS, Wegelin had no branches in the United States. Obviously, that wasn’t enough to stop prosecutors from pursuing criminal charges.

Lest anyone think the IRS is backing off its mission to discover every foreign account, the United States Attorney for Manhattan, Preet Bahara, released this statement after the guilty plea, “Wegelin became a haven for U.S. taxpayers seeking to circumvent the tax code by hiding their money in secret off-shore accounts, and the bank willfully and aggressively jumped in to fill a void that was left when other Swiss banks abandoned the practice due to pressure from U.S. law enforcement. Today’s guilty plea is a watershed moment in our efforts to hold to account both the individuals and the banks—wherever they may be in the world—who are engaging in unlawful conduct that deprives the U.S. Treasury of billions of dollars of tax revenue. We will continue our efforts until this practice is eliminated in its entirety.”

Despite all the rhetoric and misinformation in the media, opening a Swiss bank account is completely legal if reported annually. Foreign accounts are disclosed annually on a Report of Foreign Bank and Financial Accounts or “FBAR” form. They may also be disclosed on a FATCA form and on schedule B of one’s income tax return. Failure to file an FBAR can be a felony and the civil penalties are outrageous – the greater of $100,000 or 50% of the highest account balance per account, per year.

There are many good reasons to open a foreign account. Many of our clients are dual nationals who are working here but sending money “home” to family in India, Pakistan or dozens of other countries. Unfortunately, the IRS and Department of Justice often don’t differentiate between taxpayers deliberately hiding money and evading taxes from those who simply don’t understand the foreign reporting requirements.

People with accounts at Credit Suisse, UBS and Wegelin (and a host of other Swiss banks) may soon be getting audit notices from the IRS, or worse – a knock on the door from IRS Criminal Division special agents. Luckily, there is an amnesty program that can help most people avoid jail and significant penalties. The program, called the Offshore Voluntary Disclosure Program, or OVDI / OVDP, is available to almost everyone with an unreported foreign account.

There is a catch, however, is that you must apply to the program before the IRS contacts you or receives your name from a foreign bank.

Time is quickly running out for those with unreported accounts. Although much of the media attention has been focused on people with Swiss accounts, federal prosecutors have been looking at banks in India, the Caribbean and Israel too. (And those are only the ones that have been disclosed.) Beginning next year, all foreign banks and financial institutions (that definition includes brokerage firms and some insurance companies) will be required to identify foreign accounts with some indicia of American ownership.

If you have an unreported foreign account or are unsure if certain assets must be reported, give us a call. Our offshore reporting lawyers have helped many taxpayers and businesses with a wide variety of foreign reporting issues including tax amnesty, FBARs, FATCA compliance, foreign gift reporting, OVDI, foreign real estate transactions and offshore bank account reporting. We are the exclusive legal service providers for offshore tax work to the CPAmerica organization of accounting firms meaning that we are the place where the experts come to for advice. In most instances, services can be provided on a flat fee basis.

For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.

Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon San Francisco, California. Services available worldwide.

Need more information? Our Due Diligence blog has a search engine located in the upper right had corner. For more information on specific banks or topics such as FATCA, FBAR, OVDI or the like just use the search bar. We have posted hundreds of informative articles on our site.