Over the past 20 years, the world has seen a dramatic shift in the landscape of international banking. But even more recently, the overseas banking industry has seen changes of not only the type of clientele, but also the types of authorities who attempt to regulate it. As the future of financial services is shaped, several risks emerge for American taxpayers and steps should be taken to ensure that your financial and personal freedom is not swept away, like filing an FBAR.

DOJ and IRS Expand Investigations into Undisclosed Offshore Accounts

Banking used to be a predominantly domestic activity. Though foreigners may open accounts in banks around the world, the regulation of those banks was handled within the borders of the country where the bank was located. This is simply no longer the case. As the United States began cracking down on their citizens that attempted to avoid income tax by depositing their cash into foreign accounts, foreign banks quickly found themselves alongside their American customers in the crosshairs of the U.S. Department of Justice.

Since the targeting of foreign banks began, the United States has indicted Swiss banks and pressured them into huge cash settlements. The United States takes the position that a foreign bank that allows a taxpayer to stash away their savings in an account and does not ensure that the American has reported the existence of that account (or any investment income that is earned from it), has engaged in crimes like aiding and abetting income tax and conspiracy. Though there are large jurisdictional and other issues that have arisen over the years that question the DOJ’s actual legal ability to prosecute foreign banks, the financial institutions haven’t been quick to call any bluffs. In fact, foreign governments and banks alike have been lining up to come into compliance with the demands of the United States. Earlier this month, bank regulators in Israel issued requirements for Israeli banks related to the treatment of U.S. bank customers.

The New Banking Regulations in Israel

Israel’s Supervisor of Banks David Zaken announced new required procedures for Israeli banks that include precise steps that must be taken to help ensure that Israeli bank customers who are also American citizens have lived up to their domestic obligations. The binding procedures were sent to Israeli banks in the form of a draft circular and require banks to collect certain information as well as corresponding declarations of new and existing customers with U.S. residency. First, the bank must determine the source of the monies that are being deposited into the Israeli bank account. Subsequently, the bank is required to obtain a declaration of the U.S. customer that attests that they have met any domestic tax obligations. But that’s not all. The banks are also mandated to take certain steps to independently verify that their customers did indeed disclose the existence of the account and pay any taxes related to the earnings therein. Finally, new and existing customers will be required to waive their right to “bank secrecy’ with regard to U.S. investigations.

These new regulations are a part of Israel’s attempt to assist the United State’s effort to reduce the amount of foreign banks that have done little to nothing to prevent the evasion of U.S. income taxes. Like most other countries, Israel has entered into an intergovernmental agreement with the U.S. and has vowed to assist the IRS and DOJ in any way that it can. The cooperation between the two nations had already caused some procedures to change within Israeli banks, even before the new requirements were announced. Afraid of the consequences of inadvertently providing banking services to a U.S. citizen who was not declaring their foreign account domestically, some financial institutions in Israel have refused to open new accounts for American citizens.

The Dangers of Undeclared Foreign Accounts

As the world moves toward a new reality that includes no secrecy within the realm of banking, one thing is clear. There is nowhere in the world that can truly provide a safe haven for your money. The State Department has either negotiated or terrified foreign countries or their financial institutions into essentially being investigating agents for the Service. If a foreign financial institution wants to survive, they are essentially required to hand over all of the information that they have about their U.S. account holders. That information can easily lead to an IRS criminal investigation. The DOJ has not hesitated in going after anyone and everyone that they feel have violated U.S. tax law.

If you have an account in a foreign bank, there is really only one clear way out: the Offshore Voluntary Disclosure Program. The OVDP, set up by the IRS to entice taxpayers to come forward, requires participants to pay reduced penalties and back taxes related to their foreign account, but in return, avoid a criminal prosecution. Hundreds of taxpayers each year are prosecuted and convicted on charges for failing to file the required Foreign Bank Account Reporting documentation and tax evasion. Nearly all of those who are convicted are subsequently sentenced to serve time a federal prison and pay hefty fines, penalties, and restitution. The OVDP has become the most clear and safest path to minimize the consequences of keeping your account secret.

Though, many taxpayers that wish to participate in the program are already to late. If the government has obtained information from any source that indicates that you may have a foreign account that has gone undeclared, you may find yourself ineligible for the OVDP if you delay too long. Furthermore, if a taxpayer has any audit, examination or investigation open against them, they are ineligible for the program. These strict requirements evidence the need to consult with an experienced tax attorney who has helped hundreds of taxpayers come clean with the government and face minimal consequences.

The Tax Law Offices of David W. Klasing are staffed by highly experienced tax and accounting professionals who have one common goal: to keep your personal and financial well-being in the best condition possible. Whether you have a foreign bank account that you have failed to disclose or you are facing an audit or an investigation, our highly trained attorneys and accountants are here for you. No one should face the government alone, especially if your freedom is on the line. Contact the Tax Law Offices of David W. Klasing at (800) 681-1295 today for a reduced rate consultation.