Last December over 100 Swiss banks entered into a tax amnesty deal with the Justice Department to avoid possible prosecution for helping U.S. taxpayers evade taxes using offshore accounts. After a high profile prosecution against Swiss bank Wegelin two years ago, banks are leery of not participating. Wegelin was forced to close its doors after pleading guilty to U.S. tax charges. Earlier this year Credit Suisse paid a $2.6 billion fine for helping Americans hide accounts from the government.
In September, the Justice Department released the terms of the non-prosecution deal to banks. Many of the banks that agreed to participate are now crying foul. On Tuesday, 73 banks wrote a letter to complain about several provisions of the non-prosecution, tax amnesty agreement.
One of the biggest objections is that the provision requiring Swiss banks to cooperate with other countries. The banks said that was never part of the deal.
Banks are also balking because the draft agreement does not provide adequate assurances that they will not be prosecuted even though they may fully cooperate. In a letter obtained by Bloomberg news, lawyers representing the banks wrote, “Our clients are participating in this program to obtain finality as to their own exposure. We understand that the NPA [non prosecution agreement]does not bind the IRS formally, but it is important to our clients’ continuing participation through the conclusion of the NPA that we receive some form of assurance that the IRS will forebear from any further action.”
According to IFC News, Banque Cantonale de Geneve, Union Bancaire Privee and Deutsche Bank are cooperating with the government’s tax amnesty plan. The same news source claims Julius Baer and Pictet & Cie. Group are not eligible for the tax amnesty program as they are already under criminal investigation.
It’s not just Swiss banks that are in the IRS’ crosshairs. The Justice Department and IRS have also targeted banks in Israel, India, Liechtenstein, Panama, the Cayman Islands, the Bahamas, Germany, Hong Kong and reportedly Bermuda. Experts believe that banks in other countries are also being investigated.
Owning a foreign bank account is legal as long as the account is reported annually to the IRS. American expats living abroad, dual nationals and green card holders must also report their foreign holdings. Penalties for not reporting an account can be devastating. The IRS typically levies civil penalties up to the greater of $100,000 or 50% of the highest account balance per each unreported account. Brokerage accounts, precious metal accounts and certain insurance products can also be subject to these penalties if not reported.
The IRS is running a tax amnesty “streamlined reporting” program for individuals and businesses with unreported foreign accounts. Taxpayers are not eligible if they are contacted by the IRS first or if the IRS first gets their name from a cooperating bank.