Even though implementation of the new FATCA law is just a few months away, the IRS and Justice Department aren’t waiting. The full fledged assault against holders of unreported Swiss accounts continues unabated. The newest target is Zuercher Kantonalbank, better known as ZKB.
Earlier this month Manhattan’s U.S. Attorney, Preet Bharara, filed suit in a New York federal court seeking to compel Citibank and Bank of New York Mellon to turn over records of ZKB’s U.S. clients. The IRS has no authority to enforce subpoenas in Switzerland where ZKB is headquartered. But to transact business in the United States, ZKB needs to have correspondent bank relationships. Citi and BNY Mellon are believed to be the two banks that ZKB uses in the U.S.
The complaint says “ZKB has used the Citibank and BNY Mellon correspondent accounts to provide offshore banking services to U.S. taxpayers, who in turn have failed to report the existence of their ZKB accounts to the IRS, as well as the income earned on those accounts”.
The subpoenas issued to correspondent banks are known as John Doe subpoenas. Normally, the IRS must know the name of the person whose records they are seeking. Because the IRS doesn’t know who is has failed to report offshore accounts, however, it is impossible to know who might be breaking the law. Congress addressed that problem by authorizing the issuance of John Doe subpoenas but only upon a court order. To get the records from Citi and BNY Mellon, the government first must convince a judge.
Some 38,000 people have come forward since the IRS began aggressively cracking down on Americans with unreported foreign accounts. According to the complaint, just 317 holders of ZKB accounts are part of that group. It is believed that thousands of Americans have accounts there.
Owning a Swiss or other offshore account is completely legal. The Bank Secrecy Act requires U.S. taxpayers (that includes green card holders and dual nationals) to annually declare those accounts. Reporting is done on one’s income tax return and on a Report of Foreign Bank and Financial Accounts – FBAR form.
Failure to report one’s Swiss account and file an FBAR can be a felony. Although the risk of criminal prosecution is remote, failure to file an FBAR carries huge civil penalties. Just 2 years of penalties can wipe out the entire account!
We have found that most taxpayers are not willfully evading the law; they simply don’t understand their reporting obligations. Unfortunately, those folks face a rough time when caught. There are currently some amnesty and other disclosure options available but many are unavailable once the IRS finds out who they are.
This “first contact” policy means taxpayers with unreported foreign bank and other financial accounts should come forward before they are caught. The IRS says that getting caught specifically includes obtaining their name from a John Doe subpoena.
For holders of accounts at ZKB Zuercher Kantonalbank, that means time is quickly running out.
As noted above, the IRS offers several amnesty and other programs that can lower penalties. In many instances taxpayers can go through a traditional disclosure and have all or most of the penalties abated.
For more information and a free review of your options, contact us today. Let an experienced IRS attorney from our team do the worrying for you. We have helped taxpayers across the world and offer flat fees for our services. Because we handle so many FBAR penalty cases, we can perform our services for much less cost than many other tax lawyers.
Post by Brian Mahany, Esq.