I feel like a barkeep at 2:00 am shouting last call. But for customers at Julius Baer and Credit Suisse who have or had an account not yet reported to the IRS, it really is last call. The Bank Secrecy Act has long required Americans with offshore accounts to report those accounts annually on a Report of Foreign Bank and Financial Accounts – FBAR for short. With the IRS and Justice Department officials actively investigating several banks, this “last call” post should not surprise anyone.
Since the 1970′s, FBARs have been required whenever a taxpayer reaches $10,000 or more in foreign financial assets. Although most people think of Swiss banks accounts, foreign financial assets can include hedge fund holdings, the asset value of a foreign precious metals account, brokerage accounts and even some life insurance policies. If the aggregate value exceeds $10,000 even for just 1 day, FBARs must be completed for all foreign accounts.
In 2008 the IRS reached a record $780 million settlement with UBS Bank. Thereafter, the feds set their sights on Switzerland’s oldest private bank, Wegelin, and Neue Zürcher Bank. Both went under in large part because of the U.S. investigations. Since then, the IRS has targed several more banks. On that list is believed to be HSBC India, Bank Leumi, Julius Baer, Credit Suisse, Basler Kantonalbank, Mizrahi Tefahot Bank and Zurcher Kantonalbank. The Justice Department has also been targeting individual bankers at some of these banks.
With the threat of jail and the possibility of being forced out of business, some banks have wanted to cooperate. Privacy laws have made it difficult for the Swiss banks to comply. Legislation aimed at allowing banks to cooperate was recently derailed in the Swiss parliament. Last week, however, the Swiss government announced a temporary fix. Published reports suggest that Credit Suisse and Julius Baer are ready to turn over records within a few weeks.
By now, many with people who intentionally hid money in these banks have seen the handwriting on the wall and either repatriated the money (brought it back to the U.S.) or simply moved the money to another bank. Both actions are problematic.
Depending on how far back the IRS seeks records, moving the money back to the United States after investigations have already begun probably doesn’t work. While it might work for some low dollar accounts, the IRS is expected to request foreign banks to “look back” and report any American taxpayer closing accounts or moving money in the last couple years.
If you moved your money from one privacy jurisdiction to another simply to avoid getting caught, expect a criminal prosecution. Deliberately moving money to avoid filing an FBAR is considered an “affirmative act of tax evasion” by the IRS.
Failing to file an FBAR is a crime. It can also subject one to enormous civil penalties of $100,000 (or more) per year per unreported account. If you have failed to report your foreign accounts and file FBARs in recent years, there is hope.
The IRS is offering an amnesty program called the Offshore Voluntary Disclosure Program (or OVDI for short). There are much better options that may be available for those who have small balances (under $75,000), are expats living overseas or taxpayers that can prove their failure to file FBARs was not willful. Time is running out, however, to take advantage of some of these options.
The IRS has long said that it operates on a “first contact” policy. If the IRS knocks on your door first or gets your name from a cooperating bank, many of your amnesty options disappear. Holders of unreported accounts at Bank Leumi learned the hard way earlier this year when the IRS pulled the rug on pending amnesty requests. Why? Because Bank Leumi is believed to have already turned over account holder names. With Julius Baer and Credit Suisse poised to begin cooperating in just a few weeks, time is really running out.
Remember, even if you brought your money back or moved it to another bank, the “look back” that the IRS wants means you could still find yourself in deep trouble.
With so many options available and with the looming compliance deadlines, anyone with an unreported account should consult with an experienced tax attorney immediately. The tax lawyers at Mahany & Ertl specialize in offshore reporting issues including unfiled FBARs and the new FATCA compliance requirements. For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731. 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 San Francisco, California. IRS tax services available worldwide.
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Post by Brian Mahany, Esq.