About five years ago, the IRS and the Department of Justice (DOJ) started a war with Swiss banks. The IRS/DOJ wanted the records of Swiss bank clients, while Swiss banks desired to protect the banking secrecy that their clients have come to expect. After a handful of years of batting it out, it appears the IRS and the Swiss banking community have reached a truce—maybe.
The full story comes from “The Swiss-U.S. Banking Compliance Program: A Final Settlement?” in Tax Notes International (September 30, 2013), available here:
The IRS and Swiss Federal Department of Finance agreed to a tax compliance program—called the “Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.” See:
https://www.justice.gov/iso/opa/resources/8592013829164213235599.pdf
This program is complex but, basically, it allows a Swiss bank to achieve finality as to its criminal legal matters stemming from maintaining accounts for non-compliant U.S. taxpayers. In certain ways, the program is similar to the IRS Voluntary Disclosure Program, which is a program for U.S. taxpayers to safely “come clean” with the IRS regarding their undisclosed, offshore accounts. For example, Swiss banks are not required to participate in the program, although the Swiss government will encourage it. Rather, it is merely elective.
Only eligible banks may participate. There are various criteria that a bank must satisfy to be eligible. However, a bank that the Tax Division of the Department of Justice has already begun a criminal investigation of is ineligible. The Program divides Swiss banks into four categories: Category 1, 2, 3, or 4. Category 1 banks may not participate in the program; these are the 14 banks that are currently under criminal investigation by the DOJ’s Tax Division. The program requires the bank to conduct an internal investigation of varying thoroughness, depending upon the bank’s category.
The program calls for the limited divulgence of personal information to the U.S. government—to be used only to promote law enforcement (including tax compliance). An open question practitioners have is whether U.S. will carry the program equitably and practically, or inflexibly and stubborn like the IRS’s Voluntary Disclosure Program. Time will tell.
The Tax Law Office of David W. Klasing has tons of experience with the offshore voluntary disclosure program. Please contact us if you need help…
