The Foreign Account Tax Compliance Act (FATCA) was passed by Congress in 2010 and goes into effect on January 1, 2014. FATCA requires foreign banks to report to the Internal Revenue Service all assets surpassing $50,000 that belong to United States citizens, regardless of whether they are living in America or abroad. Furthermore, in August, Switzerland signed a separate treaty with the U.S. that gives the IRS unprecedented access to Swiss accounts held by American citizens.
Now, Swiss banks are pressuring former and current U.S. account holders to disclose undeclared assets to the IRS. Swiss banks are even going as far as freezing accounts unless clients can prove they have declared their account to the Internal Revenue Service, in some cases. Over the past few weeks, many Swiss banks have been sending out urgent e-mails and letters to their former and current U.S. clients encouraging them to make disclosures and requesting certain information. In addition, these letters warn that information about U.S. clients’ accounts will soon be turned over to the IRS. Many Swiss banks will be turning over information on accounts in existence as far back as August of 2008.
Most of the letters are similar and generally ask for some of the following information:
Why are Swiss banks all of the sudden sending out these letters encouraging disclosure and attempting to collect information on American clients’ U.S. tax compliance? The answer is that Swiss banks are clearly hoping to reduce their own penalties by pressuring their clients to confess or obtaining information proving their U.S. clients’ compliance. If the client’s disclosure comes after the bank sends a warning, then the bank may be able to avoid a penalty on those assets. However, if the client confesses on his or her own volition, then the IRS can still penalize the bank for those assets. Therefore, Swiss banks have every incentive right now to pressure their U.S. clients into compliance in order to reduce those penalties.
Because of this recent Swiss-U.S. treaty, Swiss banks will ultimately have to turn over account information on U.S. taxpayers and pay penalties of up to 50% of the balance of the accounts in order to obtain legal closure with the U.S. Department of Justice, unless the bank pressures clients to disclose or can prove their clients are compliant U.S. taxpayers. The U.S. Justice program will allow Swiss banks to deduct from their penalties (dollar for dollar) any money paid back from American clients who were pressured to turn themselves in.
Consequently, Swiss banks, who clearly don’t have your best interests in mind, will try to convince, threaten, coax, or otherwise influence you to give as much information over as they can. However, you want to act in your own best interest. Don’t forget that you can always make your own disclosure independent of the Swiss bank, but if you don’t do anything, eventually your account information will be handed to the IRS by your Swiss bank and the IRS will open a criminal investigation into your foreign account.
If you have recently received a letter from your Swiss bank, don’t be left in the dark as far as what to do next…we can help!