Most of the news stories that have dealt with recent Foreign Bank Account Reporting (FBAR) laws have been focused on the United States gaining access to information of Americans that have banked overseas from the foreign banks, themselves. Over one hundred Swiss banks have agreed to participate in the Swiss Bank Program, a pact between the Department of Justice and Swiss banks that require the transmission of American account information (among many other records) in exchange for a non-prosecution agreement. But convincing foreign banks to come forward to avoid criminal sanctions isn’t the only way that the government is procuring incriminating evidence.
According to multiple news outlets, the United States District Court for the Southern District of Florida granted a request to issue “John Doe” summons with regard to correspondence accounts linked to Belize Bank International Limited and Belize Bank Limited. The correspondence accounts in this case are held at Citibank N.A. and Bank of America N.A. A John Doe summons is a court order that directs a bank to turn over information about individuals that have not yet been identified. Typically subpoenas, summons, and other court-issued orders target a known individual or entity. John Doe summons are typically used when the government is able to convince a court that illegal activity has occurred but it is impossible to tell by whom until certain records are turned over.
Correspondence accounts are accounts set up by foreign banks at financial institutions here in the United States. The accounts allow American customers to make deposits and withdrawals domestically without having to transact directly with a foreign institution. Correspondence accounts are particularly helpful when the foreign bank is one that is known for assisting Americans hide financial assets overseas. The Belize banks in question are also suspected of organizing corporate entities in Belize for the purpose of interposing them between U.S. taxpayers and foreign assets.
Once information about taxpayers that have transacted with the correspondence accounts linked to the Belize banks have been procured, investigations into their tax affairs will be conducted. In the United States, a taxpayer must disclose any ownership interest (or signature authority) in a foreign bank account that has (or has had) a balance of $10,000 or more at any point in the tax year. If the government determines that a taxpayer’s failure to disclose the account was willful, the taxpayer could face several years in prison and fines of up to half of the high-balance of the account. Although the Department of Justice has not defined the term “willful”, they have taken the position that a taxpayer willfully violated the law if they banked at a financial institution that was known to provide services to taxpayers who were seeking to hide their money overseas.
To encourage taxpayers to come forward and disclose the existence of an interest in a foreign bank account, the IRS has established the Offshore Voluntary Disclosure Program (OVDP). Under the terms of the program, the government will agree to not file criminal charges if the taxpayer participant provides all of the details of the foreign bank account and agrees to pay back taxes, interest, and penalties. The OVDP has allowed many taxpayers with previously undeclared accounts to stay out of a federal prison. But there’s a catch. The OVDP is generally limited to those who are not already being investigated by the federal government. If a taxpayer’s name has already been uncovered by way of a John Doe summons and an investigation has commenced, the OVDP may no longer be a viable option for a taxpayer. Thus, time is of the essence.
The tax and accounting professionals at the tax law offices of David W. Klasing have extensive experience in assisting taxpayers decide how and when to disclose their foreign bank account. Only an experienced tax attorney will be able to provide you the sound legal guidance that is needed to effectively mitigate damage with regard to a potential criminal tax prosecution. Ensure that you have a zealous team of advocates working toward your physical and financial freedom. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
