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Changes in Swiss Law Mean Trouble for U.S. Account-Holders

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    As we strive to provide our readers with the most up-to-date and pertinent news about changes in the law with regard to taxation, it is key to showcase changes in foreign legislation, in addition to actions by the U.S. government. An important change that we have recently become aware of involves a law that was once meant to protect the privacy of foreign bank account-holders in Switzerland. With the new changes detailed below, a U.S. taxpayer who has foreign accounts that haven’t yet been declared to the IRS are in grave danger of being the target of an IRS criminal investigation without even knowing it.

    The New Legislation

    Under prior Swiss law, a bank that received a request for account-holder information would be required to give notice to the owner of the account prior to making a required disclosure. The notice would generally come in the form of a letter from the Swiss bank and would arrive on the doorstep of the U.S. taxpayer with plenty of time to take the necessary steps to reduce the domestic consequences that would naturally follow. Taxpayers would often choose to make a quiet disclosure or utilize IRS-created programs such as the Offshore Voluntary Disclosure Program.

    The law replacing the prior procedure gives more leeway to Swiss banks when notifying account-holders of the dissemination of information to U.S. tax authorities. The banks will still be required to notify the owner of the account, but it may be significantly delayed. The law allows for the deferment of notification by financial institutions until after the requested information is transmitted. The threshold to take advantage of the new deferral procedure is concerning as it only requires the bank to demonstrate that the notification to the account owner would defeat the purpose of the information dissemination or that it would thwart the investigation.

    The Swiss government has said that the new law will be interpreted narrowly, but even a limited application could prove to be damning to U.S. taxpayers. In the past, when a taxpayer had even a limited amount of lead-time prior to the transfer of their information to the IRS or the Department of Justice, they may have been able to participate in the Offshore Voluntary Disclosure Program. Regardless of how the new law is interpreted or is given effect, it poses a serious risk to taxpayers who should be poised to participate in the offshore voluntary disclosure program.

    A Way Out: The OVDP

    Under the OVDP, U.S. taxpayers who have undeclared overseas bank accounts in excess of $10,000 can come clean by paying limited penalties and back taxes. Most participants in the program are attempting to avoid high fines and penalties as well as a criminal prosecution that can lead to a sentence to time in a federal prison. Under the terms of the OVDP, the taxpayer must submit a significant amount of information about their taxes and finances. Most importantly, the taxpayer cannot participate in the program if the IRS, DOJ or any other governmental agency has received information that may evidence the existence of an undeclared foreign account.

    Thus, when a taxpayer received notice that their information was being handed over to the U.S., there was a short window that they could jump into the OVDP. But now, if the Swiss bank determines that they will utilize the new procedure to delay notification, a taxpayer will be unable to enter the program if the information provided reaches the IRS before the taxpayer has made a timely voluntary disclosure.

    The Bottom Line

    This news means one thing for taxpayers with undeclared Swiss bank accounts: disclose your account(s) now under the OVDP or run the very real possibility of spending time in federal prison. By the time that you first hear about your account information being transmitted to the United States, it will be far too late. Time couldn’t be any more of the essence

    The experienced tax and accounting professionals at the Tax Law Offices of David W. Klasing are in a perfect position to help you secure the most favorable treatment by the government when disclosing your foreign bank account. Our tax attorneys have helped hundreds of taxpayers successfully participate in the OVDP. When your financial livelihood and physical freedom is on the line, don’t face the government alone. Contact the Tax Law Offices of David W. Klasing at 800-681-1295 today for a reduced-rate consultation.

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