by Brian Mahany
Ever since the Department of Justice brought criminal charges against Swiss banking giant UBS, we have speculated on when Switzerland’s reputation for banking secrecy would finally fall. Over the last few years, the IRS and DOJ have teamed up to prosecute several Swiss bankers and their clients – Americans with unreported foreign accounts. Slowly, the two nations came closer to finding a middle ground that would allow the IRS to better uncover U.S. taxpayers with secret Swiss accounts. The day of reckoning has finally arrived.
Earlier this week, the two nations entered into a bilateral “Agreement between the United States of America and Switzerland for Cooperation to Facilitate the Implementation of FATCA.” For those who don’t know, FATCA stands for the Foreign Account Tax Compliance Act, a law passed by Congress several years ago that will soon require foreign financial institutions to identify and report account holders who have ties to the United States.
At first, most folks in Switzerland resisted the agreement. In recent months, however, some Swiss banks welcomed the move. U.S. prosecutors have been relentless in their prosecution of both banks and bankers for aiding and abetting Americans who sought to evade taxes. (Although one commenter said the agreement was about as bilateral and voluntary as the Japanese Unconditional Surrender to General Douglas McArthur at the close of World War II.) Previously we reported how many Swiss bankers are afraid to leave Switzerland for fear of being arrested as soon as they step off Swiss soil.
Under the new agreement, Swiss banks will now begin to review their accounts and determine who may be subject to reporting. The stated purposes of the agreement are as follows:
- implement FATCA with respect to all Swiss financial institutions,
- ensure that all required information about identified U.S. Accounts will be reported to the IRS,
- remove legal impediments to compliance,
- increase legal certainty by clarifying which Swiss financial institutions are subject to FATCA implementation,
- reduce implementation costs including by suspending, under certain circumstances, certain withholding and account closing obligations, and
- simplify the necessary due diligence procedures.
So what does all this mean? At this late date, there are few folks with unreported Swiss accounts who have not heard of the FATCA law or the legal requirement to annually file FBARs disclosing their foreign holdings. (An FBAR is a Report of Foreign Bank and Financial Accounts. It is U.S. Treasury form that must be filed by June 30th each year with the IRS.) Time is running out for these folks to come into compliance and avoid possible prison and loss of their accounts.
We continue to see many taxpayers with unreported foreign accounts. Most are dual nationals or foreign born Americans who continue to send money “home” to India, Korea, Israel and other countries. Many of the Swiss account holders, however, were Americans who intentionally sought to move money offshore for privacy, banking security or both.
Owning a foreign account is not illegal. In fact, it often makes sense. Failure to file an FBAR, however, can be a felony and often results in huge civil penalties; the greater of $100,000 or 50% of the highest balance for each year the account is unreported. The new FATCA law and exchange agreement with Switzerland makes it that much more difficult to hide money from Uncle Sam.
The new agreement must still be ratified by the Swiss Parliament but such action is anticipated by all parties.
There is presently an amnesty program offered by the IRS. The program, called the Offshore Voluntary Disclosure Program or “OVDI”, offers participants the ability to file their missing FBARs while avoiding audit and jail. It also offers reduced penalties. Those whose failure to file an FBAR was purely by accident may have other better options.
With all these programs there is a catch. All bets are off if the IRS finds you first. In other words, to take advantage of the OVDI program, you must contact the IRS before they find you. If they get your name first from a cooperating Swiss bank, all bets are off.
FATCA will come on line in early 2014. Some banks are already cooperating, however, and the Justice Department continues its investigation of several Swiss banks. The time to take advantage of the amnesty program is running out.
If you have questions or concerns about your offshore account, give us a call.Our tax lawyers were selected by the CPAmerica organization of accounting firms to be their preferred legal services provider for offshore tax reporting. We happily assist individuals, businesses, accountants and foreign banks with questions about FBARs and FATCA.
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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