by Brian Mahany
The U.S. Attorney for Manhattan announced 3 more indictments against Swiss bankers in the last days before Christmas. While not many care about a few Swiss bankers going jail, those with unreported foreign accounts should. The newest (and one of the most effective) tactic by the IRS and the Department of Justice in their crusade against unreported offshore accounts and foreign income involves indicting the bankers that helped Americans open these accounts.
A single banker may have dozens or even hundreds of U.S. clients. Most will “sing” and cooperate with the feds once indicted in exchange for a lesser sentence. In other words, by targeting the bankers, the IRS usually can get dozens or hundreds of names of U.S. account holders.
According to the newest indictments, Stephan Fellman, Otto Huppi a/k/a Otto Hueppi and Christof Reist were all charged with conspiracy to defraud the United States. Under the tax code, defrauding the government of tax monies is a serious felony.
The indictment does not identify the bank where the defendants worked, other than to say that they worked at a Swiss bank. Fellman and Reist are Swiss residents while Huppi is identified as a U.S. citizen. The indictment says the three actively conspired to defraud the IRS by concealing offshore bank accounts. [UPDATE: Press reports have identified the bank as Zuercher Kantonalbank.]
U.S. taxpayers – that includes ex pats residing overseas and foreign green card holders – must declare annually any ownership interest or signatory authority in a foreign financial account. Foreign accounts must be declared on a Report of Foreign Bank and Financial Accounts or FBAR annually. These accounts are usually also identified on both the tax return (Schedule B) and in some instances also on a form 8938, the so called FATCA return.
Failure to properly report and file can be criminal and huge civil penalties that can be as high as $100,000 per account per year or 50% of the highest account balance for each year the account was not properly reported.
According to the indictment, these 3 men helped Americans “hide” approximately $423 million offshore.
How did they do that? Good question.
The indictment says the trio helped Americans hide their money by having the accounts opened in code names, often referred to nominee accounts. They also insured that no mail was sent to the United States and that their clients come to Switzerland in order to transfer funds.
If the allegations are true, the 3 men face a tough choice – fight and hope to win or cut a deal with prosecutors by throwing their clients under the bus. Most Swiss bankers are not cut out for a lengthy prison sentence so we think that everyone will immediately try to cut deals with prosecutors in return for a shorter sentence. That’s great news for them but terrible news if you hold an unreported account.
The IRS is currently running an amnesty program called the Offshore Voluntary Disclosure Program (sometimes called “OVDI” or “OVDP”). This is a great opportunity if you deliberately hid money or income from Uncle Sam. Although there is a steep one time 27% penalty, that is only imposed on one year and participants avoid criminal prosecution and audit.
Better programs may be available for taxpayers who reported their foreign income but not the accounts, taxpayers with small balance foreign accounts and expats living overseas.
The rules are complex and stakes are quite high. If you have an unreported foreign bank or brokerage account, don’t delay. Amnesty is only available if you file before the IRS finds you. Quietly filing your missing back FBARs isn’t likely to work either. The IRS has made it quite clear that the lower penalties are available only if you come through one of their amnesty programs.
The tax lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of offshore reporting problems. Missing FBARs, amnesty applications, criminal tax investigations, audit defense, FATCA compliance, foreign corporation and partnership returns, foreign real estate reporting and the offshore voluntary disclosure program are a few of the things we do.
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.
NOTE: We have literally hundreds of articles on FBAR, FATCA, the OVDI program and more on our blog. Use the convenient search engine located in the upper right of our Due Diligence blog.