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Switzerland’s Biggest Life Insurance Company and its Clients Face DOJ Pressure for Potential Tax Crimes

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Switzerland’s Biggest Life Insurance Company and its Clients Face DOJ Pressure for Potential Tax Crimes

Switzerland's Biggest Life Insurance Company and its Clients Face DOJ Pressure for Potential Tax Crimes

The U.S. Department of Justice (DOJ) is investigating a Swiss insurance company and U.S. clients of that company for potential tax crimes. This issue involves the company selling insurance that acts as a “wrapper,” protecting funds from taxation in a way that avoids taxpayer requirements and shirks federal tax laws.

If you are involved in any situations like this, or may have your funds wrapped-up in an illegal scheme, talk to a Criminal Tax Defense Attorney today. The Irvine, California tax attorneys at The Tax Law Offices of David W. Klasing may be able to help you avoid criminal tax charges, and reorganize your funds into legal accounts and insurance policies. Our Tax Lawyers, CPAs and EAs can also help you pay delinquent or back taxes and amend old tax returns to cure any potential tax issues. Call today or schedule online for a reduced-rate consultation on your tax situation, and read on to learn more about this potential Swiss tax issue.

Swiss Insurance May Cause Tax Problems for U.S. Taxpayers

While Swiss bank accounts are the cliché way to hold money offshore to avoid U.S. taxes, the DOJ’s investigation of Swiss life insurance suggests there may be bigger problems today in that area of investment and finances. The problem here is the use of these insurance policies as “tax wrappers.” Since the holdings in many life insurance policies are taxed at a lower rate (if at all) than individually-held items, such as stocks and other private investments, these “tax-wrappers” work to hold those items inside the insurance policy. This allows U.S. taxpayers to – illegally – avoid paying taxes on these items.

The Swiss insurance company stores these items in Swiss bank accounts, where the U.S. government has trouble reaching them, taxing them, or checking if its citizens have properly reported offshore holdings. This company has not sold insurance policies in the U.S. since 2012, suggesting that the current investigation is years in the making. Additionally, the insurance company has been preparing for some time for DOJ investigators, preparing its documents and accounts for close scrutiny.

Taxation of Insurance Policies

Insurance policies are an interesting investment technique, because of how they are taxed. When working as intended, insurance policies take regular payments from a living person, invest them along with other insurance premiums, and pay out large sums to the survivors and named beneficiaries on the insurance policy. This generally an excellent way to pass tax free money to a loved one, and may be used in some legal ways to avoid taxes. In particular, insurance policies are very good ways to avoid probate tax, since insurance pay-outs are non-probate transfers.

This means that, while money passed through a will or intestacy is subject to a high “death tax” or “probate tax,” money that passes through an insurance policy is not subject to probate, nor probate taxes. The money held in an insurance policy may be passed to an individual named on the policy, such as a spouse or children, or to an entity, such as a business entity or a trust set up for the maintenance of your loved ones after you are gone.

What this Swiss insurance policy does is very different. Rather than holding money for your loved ones, it holds investments, stocks, and other assets that should be subject to taxes and disclosures now. While these assets may avoid probate tax later, they also may illegally evade U.S. income taxes and information reporting every year because they are held within the “wrapper” of the insurance policy. In addition, the owner of the account is obscured, preventing the IRS from reaching its true owner – the U.S. taxpayer – for taxation.

Swiss “Insurance Wrapper” Crimes

Failing to pay tax on these stocks and other assets could qualify as a tax crime in the U.S. Even though you might be using a service under the scope of a foreign government, the United States still imposes foreign information requirements and income taxes on foreign holdings. First, you may need to notify the U.S. government of foreign accounts and holdings through an FBAR (Report of Foreign Bank and Financial Accounts) or through Form 8938, as required by FATCA (Foreign Account Tax Compliance Act) and other laws. Intentionally failing to do so carries steep fines and potential criminal charges.

Additionally, reducing your tax burden by an illegal process is a potential example of tax evasion. The intentional acts used to dodge these taxes could be considered tax evasion, and lead to criminal charges. At the least, you may have failed to pay all of the tax you were required to. If the government can prove this was done willfully, it could qualify as willful failure to pay taxes.

Irvine, California Tax Attorneys

The Tax Attorneys at The Tax Law Offices of David W. Klasing routinely and frequently represent clients on a variety of very serious and high stakes civil and criminal tax issues. If you are facing pressure from the IRS or Department of Justice, talk to one of our Tax Attorneys right away. Our Tax Lawyers will work to prevent criminal tax charges from being levied against you, and explain all of the options available to you including potentially a streamlined or Offshore Voluntary Disclosure in order to fix unpaid or evaded income taxes, and unfiled foreign information reporting. For a reduced-rate consultation with our tax attorneys, call 800-681-1295 or schedule online today.