For a long time Lebanon has been has known as a tax haven for people and organizations attempting to hide their funds from government agencies, especially tax authorities. However, following comments by Chahdan E. Jebeyli, head of the legal and compliance group of Lebanon’s largest lender, bank Audi, those times are over. U.S. taxpayers who have failed to file their Reports of Foreign Bank and Financial Accounts (FBAR) are subject to an increasing risk that the IRS will discover their non-compliance.
Lebanon has a long history of tax non-compliance for Lebanese and foreign citizens. The IRS is primarily concerned with Lebanese bank accounts held by U.S. citizens. Historically, Lebanese banks refused to provide information to the IRS about accounts belonging to U.S. citizens. This led to Lebanon achieving the moniker of the “Switzerland of the Middle East”. This policy of non-disclosure was largely created by Lebanon’s Banking Secrecy Law of September 3, 1956. This law created an affirmative duty of secrecy for Lebanese bankers to protect their clients’ information and not disclose any information regarding their accounts, investments, or other information without prior written consent of the client. Thus, by law, Lebanese bankers could not give information to the IRS regarding U.S. patrons.
However, given the fact that the Lebanese economy is heavily reliant on the dollar and that the Lebanese pound is pegged to the U.S. dollar, Lebanese bankers are eager to maintain good relations with U.S. regulators. Lebanese bankers seem especially eager to maintain good relations after Beirut’s Lebanese Canadian Bank settled a suit involving accusations of using U.S. banks to launder money for Hezbollah last year.
What does this mean for you? Although, Lebanon has not signed an Intergovernmental Agreement, many Lebanese bankers are pushing for voluntary compliance with FATCA. These bankers are looking to take advantage of exceptions to the Banking Secrecy Act in order to comply with FATCA by providing the IRS with information about accounts held by U.S. taxpayers in Lebanon.
In light of the IRS closing in on tax evaders with overseas accounts, tax attorney, David W. Klasing recommends that tax evaders be proactive in minimizing their civil and criminal tax liability. Although, Lebanese bankers initially recommended that Lebanese banks ignore FATCA and simply absorb the 30% penalty on transactions involving American clients, they have recently changed their tune and are opting for voluntary compliance and reporting U.S. clients to the IRS. Klasing explains that the harsh penalties stipulated by FATCA on American transactions would eventually lead to voluntary disclosures stating that “It was only a matter of time before those penalties began to bully foreign banks into compliance. This is just the latest in a wave of countries and financial institutions that will begin reporting U.S. tax evaders to the IRS.”
Klasing recommends making a “noisy” disclosure of previous failure to file FBAR’s with the IRS. “In my experience, the IRS is much more likely to exercises its discretion not to prosecute for FBAR violations if the taxpayer makes a voluntary disclosure by following the Offshore Voluntary Disclosure Initiative Program (OVDI).” Especially since recent case law has approved very severe punishments for willful non-filers.
At the Tax Law Offices of David W. Klasing we have vast experience with voluntary disclosures. Our team of seasoned tax attorneys and CPA’s can help you make the appropriate disclosures to the IRS in a way that minimizes monetary penalties and eliminates the risk of prison time. Knock on our door before the IRS knocks on yours.