by Brian Mahany
Someone complained earlier this week that all the news coming out about the crackdown on unreported foreign accounts is negative. After recent press reports from Switzerland, we are happy to report that the news is only 98% bad!
Last week, the Swiss Federal Administrative Court ruled that Credit Suisse does not have to give the IRS information about a particular bank client. While the ruling is specific to a that customer, others may benefit from the ruling.
After the U.S. began seeking information from Credit Suisse, an American client of the bank sought to block the release of that information. Rather than seek sympathy from a U.S. court, the taxpayer turned to Swiss authorities. Under a 1996 treaty, the IRS can seek information in limited cases from Swiss authorities. Last week’s court ruling, however, says the IRS went too far.
While many may be excited by the ruling, Swiss lawmakers subsequently passed a newer, more expansive treaty with the United States. Ironically, that treaty hasn’t been ratified by Congress meaning for now, the taxpayer’s identity and records are safe from disclosure.
The Department of Justice is investigating somewhere between 11 and 17 Swiss banks according to those with knowledge of the probe. Earlier this year justice officials indicted Wegelin, Switzerland’s oldest private bank. The bank subsequently dissolved after the indictment.
Swiss banks are largely caught in the middle just like their U.S. clients. The government has been indicting banks, individual bankers and customers with unreported accounts. Swiss banks have to contend with both U.S. laws which prevent aiding and abetting tax evasion and Swiss bank secrecy laws.
Although a few people may benefit in the short term from the Swiss court’s decision, we still believe that the era of bank secrecy is largely over. Although offshore bank and foreign brokerage accounts are completely legal, failure to disclose them to the IRS is a felony. If you have an unreported account, now may be the time to come forward. The IRS is currently offering an amnesty program (the offshore voluntary disclosure program) for those taxpayers who have failed to file the required annual FBAR forms identifying their offshore holdings. The penalties are steep (27.5%) for most taxpayers but the program avoids audits, avoids even steeper penalties and essentially gives participants a “get out of jail free” card.
The decision to disclose is becoming easier. The best method to disclose, however, requires a knowledgable tax lawyer or CPA well versed in foreign reporting issues. Amnesty may not be the best deal for everyone.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including FBARs, the new FATCA requirements, tax amnesty, OVDI, voluntary disclosures, foreign gift reporting and Swiss accounts.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.