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Number of Swiss Banks Working with the DOJ Rises, Again

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Number of Swiss Banks Working with the DOJ Rises, Again

Unless you have been living under a rock (without an internet connection) for the past few years, it is no surprise that the government is taking major steps to crack down on taxpayers that have bank accounts in foreign countries. To showcase its accomplishments, the IRS and DOJ maintain a list of foreign banks that have agreed to provide incriminating information about U.S. taxpayers to the government. The recent expansion of that list spells nothing but trouble for some taxpayers.

Under federal law, a taxpayer that is either the owner of, or has signature authority over an account that is maintained in a foreign jurisdiction (and has a balance of $10,000 or more) is required to disclose the account’s existence when tax time rolls around. The purpose of the requirement is simple: the United States residents taxes on a worldwide basis and wants to keep track of your money, whether it is held domestically or otherwise. Back in what many overseas investors call the “good ol’ days”, the Swiss government allowed for bank secrecy and thus, catered to Americans that wanted to stash their money away without the IRS having any knowledge of it.

But simply said, that was then and this is now. The Obama administration has taken substantial steps to ensure compliance with Foreign Bank Account Reporting (FBAR) laws by not only prosecuting those who fail to disclose their foreign financial interest, but also the institutions where the accounts are maintained. When the U.S. government began planning prosecutions of Swiss banks, the institutions knew that their ability to keep account information secret was extremely diminished. Backed into a corner, the Department of Justice gave them an ultimatum: fully cooperate with the United States or face criminal prosecution. It is likely no surprise to learn that most banks chose the latter and agreed to work with the U.S.

Under the DOJ’s Swiss bank deferred prosecution agreement, participating financial institutions are required to fully cooperate with U.S. officials with regard to any tax matter. Further, the agreement requires that the foreign bank disclose any and all information with regard to American-owned or controlled accounts at that institution.

Upon an agreement being reached between the Swiss bank and the Department of Justice, the financial institution’s information is added to the IRS List of Foreign Financial Institutions or Facilitators. This list is used to provide a warning to taxpayers that are customers of the listed banks. If the government is provided information that shows that a taxpayer has signature authority over, or ownership in an account that is housed at one of the listed institutions, the IRS will assess a 50% FBAR civil penalty, instead of the standard 27.5% non-willful penalty if and only if the taxpayer enters into a offshore voluntary disclosure before the government opens up an audit or a criminal investigation. In essence, secretly banking at one of the institutions on the IRS list is deemed further proof that a taxpayer willingly attempted to hide their account by failing to file an FBAR.  Couple this with even small amounts of unreported income and your staring a criminal conviction in the face if the government gets to you before you have knocked on the criminal investigation divisions door through a Offshore Voluntary Disclosure.

Federal law imposes a federal prison term not to exceed three years for each instance of willfully failing to inform the government of the offshore account. Thus, a taxpayer could be wiped out financially and also be sentenced to federal prison for a considerable amount of time.

According to a Department of Justice press release, another Swiss bank has joined the ranks of the other 44 financial institutions on the IRS List of Foreign Financial Institutions or Facilitators. Officials say that Schroder & Co. Bank AG has agreed to pay a $10.3 million penalty and enter the DOJ’s Swiss Bank Program.

Taxpayers that currently have foreign bank accounts aren’t completely out of luck. The government has established a way that individuals can come forward without facing criminal prosecution. The Offshore Voluntary Disclosure Program (OVDP) defers criminal prosecution for willful failure to file an FBAR if the taxpayer agrees to pay a penalty, back taxes, and interest. But there is a catch: if the government has already opened an investigation into your tax affairs, you likely do not qualify for the program. This reality has lit a fire under taxpayers that could benefit from the OVDP.

The tax and accounting professionals at the Tax Law Offices of David W. Klasing have a tremendous amount of experience in assisting taxpayers with various tax matters including Foreign Bank Account Reporting compliance. The OVDP is not always the right path to take and an experienced tax attorney can help prevent any missteps while on the road to getting right with the government. Contact the Tax Law Offices of David W. Klasing Today for a reduced-rate consultation.