FBAR Tax Compliance for Expats in Switzerland
FBAR & Foreign Voluntary Disclosure for US Expats
Switzerland has long-held a reputation as being a haven for secret bank accounts, secret transactions, and a host of other less than savory dealings. Much of this reputation comes from Switzerland’s traditional commitment to banking secrecy which was famously reinforced in its 1934 Banking Law. Under the 1934 law the identity of Swiss bank account holders was kept secret and protected from discovery. In fact, under the 1934 law it was a criminal offense to reveal the name of an account holder. Many wealthy Americans and wealthy individuals from throughout the world used the Swiss banking laws to conceal income and assets to avoid paying tax.
Unfortunately for those still holding accounts in Switzerland, the country’s once famous banking secrecy laws are no longer in effect and you need to ensure tax compliance for expats in Switzerland. In 2003, the Swiss government announced an information sharing agreement with the United States government. In 2013, the Swiss government indicated its willingness to ratify a treaty that would transition the country to accepted OCED banking standards. The country’s legislature also agreed to a bill that would allow the country’s financial institutions to comply with provisions of Foreign Account & Tax Compliance Act (FATCA). In short, if you still have undisclosed accounts in a Swiss bank, the likelihood of detection and a tax enforcement action has never been greater.
American Expatriates Must Make FATCA & FBAR Disclosures Annually
Americans, whether they are living at home or in Switzerland, have an obligation to disclose certain foreign financial accounts under both Report of Foreign bank and Financial Accounts (FBAR) and FATCA. The FBAR obligation applies to U.S. taxpayers holding or controlling more than $10,000 in foreign financial accounts. Under FBAR there are harsh penalties for both the unintentional and intentional failure to maintain reporting compliance, however the penalty for willful failures is much more severe. That is while a mistake or accidental failure to file or disclose can be punished by fines of up to $10,000 for each instance of non-compliance, the penalty for an intentional or voluntary disregard of a known FBAR duty is much more severe. A willful FBAR violation can result in a fine that is the greater of $100,000 or half of the original account balance. The penalty can be imposed for each year the account was left in a noncompliant state so penalties commonly exceed the original account balance.
FATCA reporting thresholds are more fluid due to both the types of covered assets and accounts and because one’s tax filing status is taken into consideration. For instance, a taxpayer with single filing status filing from within the United States must disclose their accounts if the value of the foreign financial assets exceeds $75,000 at any time during the year or $50,000 on the last day of the tax year. By contrast a married taxpayer living abroad and filing jointly is not required to disclose accounts until foreign assets exceed $400,000 on the last day of the year or $600,000 at the year’s end.
DOJ Swiss Bank Program Increases the Odds of Undisclosed Account Detection
The Swiss Bank Program announced in August of 2013 represents a serious risk for U.S. taxpayers holding accounts in Switzerland. Under terms of the program, the Swiss government agreed to provide information about U.S. linked accounts through a model two international agreement. While it is believed that the model two agreement is more responsive to privacy concerns, this should not be misconstrued to mean that foreign financial institutions will not release account holder information. Instead it means that Swiss banks will only provide information upon request. But, Swiss banks will work to identify U.S. Account holders by examining accounts for individuals from the U.S. for may derive a beneficial interest from the account, have ownership of the account, or have signature authority over the account. The steps required for Swiss banks to maintain compliance increases the risk of foreign undisclosed detection. Taxpayers with undisclosed Swiss accounts should take immediate action.
OVDP Can Mitigate the Consequences of Foreign Account Disclosure Non-Compliance
While all taxpayers with undisclosed foreign accounts are likely to have to pay some form of an offshore penalty to achieve compliance, the Offshore Voluntary Disclosure Program results in a much more favorable disposition than one would face if the non-compliance was discovered by the IRS. To schedule a reduced-rate consultation with an experienced international tax attorney and CPA that understands FBAR tax compliance for expats in Switzerland, call the Tax Law Offices of David W. Klasing for a reduced-rate consultation. Call 800-681-1295 or contact us online.