by Brian Mahany
The little European principalities of Monaco and Liechtenstein have long been known as tax havens. But that may soon be changing. One of Liechtenstein’s largest banks has begun notifying customers that it has received an information request from the IRS. Liechtensteinische Landesbank AG is cooperating with authorities and will be turning over records of any U.S. taxpayer who maintained $500,000 or more in the bank between 2004 and the present.
Opening a foreign bank account is completely legal if properly reported to the IRS. Foreign bank, brokerage and other financial accounts must be reported annually on a Report of Foreign Bank and Financial Account more commonly known as an “FBAR.” Failure to file FBARs can result in huge penalties, 5 years imprisonment and loss of the entire account balance (even if the account is now closed).
Until this year, bank secrecy laws made it illegal for Landesbank or other banks in Liechtenstein to disclose account holder information. That made the country a popular tax haven for wealthy Americans looking to conceal money from Uncle Sam. Unfortunately, many other Americans open accounts their because it is one of the wealthiest and safest places in the world.
Many Americans and dual nationals are unaware of the reporting requirements for offshore accounts. Once they learn, many are afraid of coming forward for fear of the huge penalties they face. Some with offshore accounts simply close the account and bring the money home, hoping they won’t get caught. Others file an FBAR for the current year and hope the IRS won’t ask any questions (a so called “quiet disclosure”). And still others do nothing acting on some misguided belief that the IRS can’t easily find their account. Ask someone who had an unreported account at UBS if that worked well!
The simple fact is that the IRS cannot find every American with an offshore account. But with the global implementation of FATCA next year (the Foreign Account Tax Compliance Act) and global pressure to ferret out unreported accounts, the odds of getting caught are going up exponentially. That the IRS is asking Landesbank for records back to 2004 should be a warning that just closing your account won’t work either.
If you have a foreign account that hasn’t been reported, talk to a tax attorney or CPA well versed in foreign reporting requirements. If you have had your account for several years, speak to a tax lawyer. The penalties – including jail – are simply too great to ignore.
There is some good news in all of this. The IRS is currently running an amnesty program for taxpayers with unreported accounts – that includes unreported foreign brokerage accounts too. The penalties are steep, although there are special rates for small accounts (under $75,000 total) and those who inherited accounts. The benefit of amnesty is no jail, one time penalties and no audit.
If you can prove that your actions weren’t “willful,” you may wish to opt out of amnesty and go through a traditional disclosure process. That involves an audit but the IRS has much more flexibility in waiving penalties.
Many of our clients have unreported accounts in India, Canada, China, Israel and Europe. You still have choices, although not doing anything is probably a bad choice. For those with large accounts in Landesbank, you also have choices although time is running out. The IRS amnesty program and criminal prosecution protocols run largely on a first contact basis. If the IRS finds you first, all bets are off and you are not an amnesty candidate.
The tax lawyers at Mahany & Ertl have helped many people with a wide variety of tax problems. If you have questions about FBARs, FATCA, OVDI, voluntary disclosure or reporting offshore businesses and gifts, give us a call. All inquiries are kept in strict confidence and protected by the attorney – client privilege. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464.
Mahany & Ertl – America’s Tax Lawyers, proudly giving taxpayers a voice worldwide. Milwaukee, Detroit, Portland (ME) & Minneapolis. IRS services nationwide and worldwide.