by Brian Mahany
Wegelin & Co. was the world’s oldest bank. Established in 1741, decades before the Revolutionary War, the bank announced it will be permanently shutting its doors. Why? The bank simply could not survive after pleading guilty to U.S. criminal charges that it assisted American taxpayers evade taxes.
Wegelin once boasted to depositors that it was beyond the reach of the IRS. It soon learned, however, that Uncle Sam has a mighty long reach. Although it had no branches or employees within the United States, prosecutors here successfully indicted both the bank and 3 of its bankers.
U.S. taxpayers with unreported foreign accounts should take heed of the Wegelin prosecution. The IRS is deadly serious about tracking down tax evaders and unreported foreign accounts. Switzerland was once thought of us the ultimate bank secrecy jurisdiction with its storied “numbered” accounts. Banks and bankers when indicted, however, are relatively quick to cut a deal with the government to avoid jail or reduce fines.
Many U.S. taxpayers have offshore accounts for very legitimate reasons. Some are dual nationals that wish to send money home to family, some are retired American expats that now reside overseas, some simply don’t trust the U.S. banking system (who can blame them) while others find themselves added to an account of a loved one who lives overseas. Of course, a small percentage of folks open offshore accounts hoping to evade taxes.
Having a foreign bank or brokerage account is completely legal if you remember to file annual FBARs (Report of Foreign Bank and Financial Accounts). Many taxpayers must also file a FATCA form 8938 with their income tax return each year as well. Failure to file an FBAR can be a felony. And in certain cases, the government may also be able to charge you with tax evasion as well if your failed to report income such as dividends or interest from your foreign accounts.
Most taxpayers are not a risk for criminal penalties but still face huge civil penalties for failing to file FBARs. Those penalties can be as high as $100,000 per year or 50% of the highest account balance.
Many potential clients we speak with wonder if they will get caught. The prosecution of Wegelin should serve as a sobering reminder of just how far the government is willing to go in order to discover those with foreign accounts. Prior to Wegelin, the feds successfully pursued UBS bank.
Will Wegelin be the last? Absolutely not. The government is already been widely rumored to be investigating Credit Suisse, Julius Baer, Clariden Leu, Kantonbank, HSBC, Hapoalim, Bank Leumi and bank Mizrahi Tefahot. There are probably many, many more that are also under investigation.
If you have an unreported foreign bank or have unreported foreign income, contact an experienced attorney that specializes in offshore reporting. There are presently several amnesty programs that may help you come into compliance while avoiding criminal prosecution and much of the penalties. In some instances, there may be no penalties.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon San Francisco, California. Services available worldwide.
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