[Post updated 2020] We have been warning people for years that the day of reckoning was coming. Sure, there were some false starts and last minute political moves, but the waiting is over. In 2013, Switzerland and the United States reached an agreement where the Swiss will begin releasing the names of thousands of U.S. taxpayers holding Swiss accounts. That information is going to the IRS.
When we first wrote about the information, we warned that taxpayer who had not reported their foreign accounts could be facing huge penalties or worse – jail. Years later there are still Americans who think they won’t get caught.
In the early years after the Swiss agreed to cooperate, many folks with unreported accounts simply didn’t know of their obligation to do so. The IRS offered several amnesty programs to help people comply. For most taxpayers, compliance means filing an electronic FBAR form and also FATCA form. The latter gets filed with their income tax return.
FBAR is short for Report of Foreign Bank and Financial Accounts. If you have financial assets of $10,000 or more outside the United States, you are required to report those accounts to the government. The FATCA forms have different income based filing threshholds.
The Bank Secrecy Act has long required most Americans with offshore accounts to report those accounts to the government on a Report of Foreign Bank and Financial Accounts or FBAR form. (The law was passed in the 1970’s.) Compliance has been spotty and many Americans have elected to take their chances and not report their accounts.
Under the terms of the deal between both nations, Swiss banks not already under investigation will be able to avoid criminal prosecution and turn over records. More ominously, the deal requires banks to look back in their records for accounts that were transferred or repatriated before the deal becomes final. If you thought you could stay one step ahead of Uncle Sam by simply moving your account to another country, you thought wrong.
Many Swiss banks were eager to get out from under the specter of a criminal prosecution. (The Justice Department’s prosecution of Wegelin effectively shuttered one of the oldest private banks in Switzerland.) The Swiss banking association and Swiss government is on board. The Parliament may oppose the deal but it has been written in such a way that parliamentary approval is no longer necessary.
Once the information began flowing to the IRS, it is too late to take advantage of amnesty or certain other penalty reduction programs. The IRS has long said that if they contact you first or get your name from a cooperating bank (even if they have yet to contact you), all bets are off.
At the risk of overkill, if you have an unreported Swiss account and haven’t made an FBAR filing, the waiting is over. Come clean immediately or risk possible criminal prosecution and probable civil penalties of $100,000 / 50% of the highest account balance over the last 8 years. (Typically the IRS won’t impose penalties greater than the value of the account but that is still quite harsh!)
Think you are safe because you closed the account or moved it? Think again. The same rules and penalties apply.
The GAO says that thousands of attempted to avoid penalties by making an FBAR “quiet disclosure”. The IRS says it is going after those folks as well. (And once you quiet file an FBAR, the government knows who you are and where your money is!)
Many taxpayers took advantage of the IRS’ amnesty program (Offshore Voluntary Disclosure Program or OVDI) and were able to avoid prosecution and the harshest of penalties. Some decided to roll the dice and were successful in proving their actions were unintentional or based on ignorance.
Years later we are surprised that there are still thousands of U.S. taxpayers hiding money in Swiss accounts or in other so-called “tax haven” jurisdictions. That is where whistleblowers play a role.
In October 2020, the Department of Justice obtained a guilty plea from a company called Strachans SA. Their crime? helping Americans hide money in Swiss accounts. According to prosecutors, Strachans:
- Managed undeclared assets for U.S.-based clients that were held by nominee sham entities belonging to the U.S.-based clients.
- Facilitating frequent cash collections by U.S.-based clients knowing that they had no intention of declaring the funds to the IRS.
- Providing mechanisms for U.S.-based clients to access their undeclared offshore funds in a secret manner, including fake loans, fake consultancy agreements, and dummy invoicing.
- For a limited number of U.S.-based clients, who sought an extraordinary level of confidentiality, holding funds in the personal accounts of Strachans’ shareholders to conceal the true beneficial ownership of funds from the IRS.
We doubt this will be the last prosecution of a bank, taxpayer or third party service provider assisting in offshore tax evasion using Swiss accounts.
IRS Whistleblower Rewards for Unreported Swiss Accounts
If a taxpayer had a Swiss account in his or her name, Uncle Sam probably figured that out by now. Heck, the Swiss probably told the IRS. The people gaming the system today do so with phony shell companies in which it becomes difficult to determine who the beneficial owner is.
Let’s use an example. Joe Tax Cheat lives in Washington D.C. He creates a company in Singapore called Tax Evaders R Us. But the owner of that company is another company located in Panama. The true owner of the company – Joe – his hidden behind two layers. The IRS may never find Joe’s Swiss account because the Swiss don’t know that the account is really owned by an American. Enter the IRS Whistleblower Program.
Knowing that offshore tax cheats are hard to find, the IRS will pay up to 30% of whatever it collects from an offshore tax cheat or a U.S. taxpayer with unreported foreign accounts. Typically these cash rewards are only payable in larger cases. That means because Dr. Singh puts a couple thousands dollars in an account in India to help care for his aging mother won’t generate a reward.
IRS whistleblower cases accepted worldwide. All inquiries are protected by the attorney – client privilege.