There have been many false starts in the long battle between the IRS and proponents of Swiss banking secrecy. Even after both Swiss banks and the Swiss finance ministry caved to pressure from Washington, the Swiss parliament stepped in to prevent the banks from making wholesale disclosures to the IRS. Now a deal between the two nations is all but complete. For U.S. taxpayers that have failed to make FBAR filings or who have unreported Swiss accounts, time is running out.
For several decades, U.S. taxpayers (including Americans living overseas, dual nationals and resident aliens) have been required to report foreign financial holdings on a Report of Foreign Bank and Financial Accounts (or FBAR for short). Unlike tax returns for which you can seek an extension, the FBAR form is due June 30th. A willful failure to file is considered a felony punishable by 5 years in prison.
Many taxpayers with hidden Swiss and other foreign accounts have been taking a “wait and see” approach. Unfortunately, the waiting is about over. A senior official at the U.S. Department of Justice said on Wednesday that a deal with the Swiss was expected at any moment.
Holders of unreported foreign accounts have more than jail to fear. Although the risk of criminal prosecution is very low, the IRS has proven itself very adept at finding taxpayers that have not filed an FBAR. Those that are caught can expect both a tax bill and a penalty assessment of the greater of $100,000 or half the highest balance in the account.
The IRS is currently running an amnesty program called OVDP – the Offshore Voluntary Disclosure Program. There is no cut-off date for the program but it is not available once a bank supplies your name to the IRS. Even if the IRS takes a year or more to contact you, amnesty is off limits once the banks’s disclosure is made.
Making things worse for taxpayers is next year’s looming FATCA law. The Foreign Account Tax Compliance Act requires foreign banks and other financial institutions to disclose all Americans with an account. As noted above, once a bank turns over your name, any chance of getting a favorable amnesty settlement is gone.
Some Taxpayers Think They Can Quietly File their Missing FBAR Forms and Avoid Scrutiny
Tax experts chuckle about this one. The IRS is asking banks to retroactively look at their account data and not only disclose Americans with foreign accounts but also look for Americans who recently transferred, closed or renamed their accounts. If the IRS thinks you moved or renamed your account to avoid detection, chances of criminal prosecution increase dramatically.
The Quiet Disclosure strategy not only doesn’t work, it sets up taxpayers for a huge interest and penalty bill. The IRS publicly states on their amnesty website that those who try to quietly send any missing FBAR forms to the Service Center may find themselves in hot water.
If you have an unreported offshore account, consult with a tax professional immediately. The offshore reporting rules are incredibly complex and the stakes very high. Our firm offers flat fees and will represent you free of charge if the IRS disagrees with our position and we must appeal to U.S. Tax Court. Few tax lawyers offer that guarantee. And non tax attorneys can’t even represent you in court.
Even if you are already going through amnesty, we can still help you. Many taxpayers lack confidence in their adviser or find themselves in the middle of an IRS audit or amnesty applications and need help. Often we can help people already in amnesty get a better deal. IRS agents often apply the wrong exchange rate, include accounts that shouldn’t be reportable or fail to use a lower available penalty rate.
The IRS lawyers at Mahany & Ertl have helped many taxpayers with a wide variety of FBAR and FATCA related problems. (We represent banks, hedge funds and offshore financial institutions as well.) We can help with reporting of foreign real estate transactions, corporations, trusts and gifts too. For more information contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author of this post, attorney Brian Mahany, can also be contacted at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl is the exclusive legal services provider for FBAR compliance to the CPAmerica organization of accounting firms. We represent clients throughout the world and United States.
Post by Brian Mahany