Less than 24 hours ago we reported that the U.S. Attorney was seeking to obtain records from Zurcher Kantonalbank (ZKB). We have since obtained records from the U.S. District Court for the Southern District of New York indicating that Judge Kimba Wood has signed an order permitting the IRS to obtain records from BNY Mellon and Citibank regarding customers with accounts at ZKB. Because ZKB has no US branches, they use both Citi and BNY as correspondent bankings when needing to transfer money to or from American customers.
We also just learned that yesterday, U.S. District Court Judge Richard Berman signed a similar order allowing the IRS to obtain records from BNY Mellon, Citibank, JPMorgan Chase Bank, HSBC Bank, and Bank of America, to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited. Better known as Butterfield, the Bermuda based bank does business in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom. Many of those countries were considered tax havens until recently.
With the Obama administration’s FATCA legislation just around the corner, most foreign banks will soon be reporting accounts owned, controlled or having ties to persons in the United States. FATCA – short for the Foreign Account Tax Compliance Act – requires foreign financial institutions to examine their accounts and report those with ties to American taxpayers.
Even though FATCA is still several months away, the decision by the Justice Department and the IRS to issue so-called John Doe subpoenas shows just how aggressive the IRS has become in their determination to find unreported foreign accounts.
Federal law requires foreign accounts to be reported each year on one’s tax return and on an FBAR form. Willful failure to file an FBAR is a criminal offense and also carries huge civil penalties.
The decision to issue John Doe subpoenas is signficant for those taxpayers with unreported accounts at either bank. The IRS operates on a “first contact” policy. The IRS takes the position that once they obtain a list of names from a John Doe subpoena or FATCA disclosure, the people on that list are no longer eligible for the IRS’ amnesty program called the Offshore Voluntary Disclosure Program.
Taxpayers sitting on the fence don’t have much time. The court has already determined that there is a “reasonable basis” to believe that there are taxpayers with unreported accounts at both banks. It may take the banks a few weeks to comply, but soon a list of names will be delivered by Citi, Chase and the others to the IRS. Because they are the correspondent banks for ZKB and Butterfield, they can be forced to cooperate.
Last year, 3 employees of ZKB were indicted for helping Americans hide $423 million in secret Swiss accounts. The feds claim that they have identified 371 people with accounts at ZKB and 81 at Butterfield. The IRS believes there are hundreds, if not thousands, more.
For more information and a free review of your offshore reporting obligations and filing obligations, contact us today. Let an experienced FATCA 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.