Most readers of tax news have likely formed the opinion that, due to efforts of the federal government, it is not wise to maintain a secret bank account in Switzerland. Many Swiss financial institutions have come forward and agreed to participate in the Swiss Bank Program, which was established by the U.S. Department of Justice. But Switzerland isn’t the only country outside of the United States that is being targeted by the U.S. federal government. As you will see in the story below, no hidden bank account in any foreign jurisdiction is truly safe from scrutiny by the IRS and the Department of Justice. If you have a foreign bank account anywhere outside of the United States that has not yet been disclosed to taxing authorities, it is in your best interest to contact an experienced tax attorney as soon as possible to discuss your options. Taxpayers who fail to address their situation may find themselves wishing they had from a federal prison.
According to a Department of Justice press release, a federal summons case against UBS AG was recently dismissed due to cooperation by the worldwide financial institution. The U.S. government was attempting to gather information about a particular foreign bank account that was held at the UBS Singapore branch. Originally, UBS refused to cooperate in providing the requested documentation. When the Department of Justice filed a lawsuit in U.S. federal court asking a judge to issue an order requiring that UBS produce the requested documents, the bank complied.
The Justice Department stated in court documents that the need for the UBS Singapore information came about through the examination of Ching-Ye “Henry” Hsiaw, an individual who was subject to U.S. tax. The IRS was attempting to gather information that would detail Hsiaw’s worldwide income from 2006 through 2011. During Hsiaw’s IRS income tax examination, information came to the attention of the revenue agent that suggested that Hsiaw transferred money from a UBS Switzerland account to one located in Singapore. It was this information that led to the information request that was the subject of the federal lawsuit.
At the end of the day, UBS avoided having to defend its position in federal court. Although this was a win for the U.S. government, it is a reminder to U.S. taxpayers that foreign accounts overseas cannot maintain their ability to be secretive. With international financial institutions like UBS bending over backwards to cooperate with U.S. taxing authorities, Americans with foreign bank accounts simply cannot rely on their account information being kept private by their bank.
The Foreign Bank Account Reporting (FBAR) laws in the United States require U.S. taxpayers to notify the federal government of the existence of any foreign bank account that has a balance of $10,000 or more at any point in the tax year. U.S. taxpayers who do not disclose the existence of such accounts face hefty penalties, interest, and potentially back taxes. For those Americans who “willfully” fail to declare their foreign accounts, a sentence in a federal prison may result. The kicker with regard to whether a taxpayer’s conduct is willful or not is that the federal government has refused to elaborate as to its legal definition.
Over the past several years, the United States has taken several steps to ensure that information between the foreign banks, foreign taxing authorities, and the United States flows freely and openly. The United States passed the Foreign Account Tax Compliance Act (FATCA) which requires foreign banks to transmit identifying account information to the United States on a continuous basis or face a 30% withholding tax on any outbound payments it receives. Needless to say, foreign banks are not willing to take a financial hit in order to protect the anonymity of its customers. Furthermore, the United States and many foreign countries have entered into Intergovernmental Agreements (IGA’s) whereby foreign banks in countries outside the United States are required by local law to either transmit account-holder information to the local taxing authority (which is then transferred to the IRS) or transmit the information to the IRS directly through the International Data Exchange Service (IDES).
The IRS has established a program (the Offshore Voluntary Disclosure Program or OVDP) whereby U.S. taxpayers can come forward and disclose their foreign bank account to the government in exchange for the government’s word that they will not bring a criminal case against them for willfully failing to file an FBAR disclosure. To participate in the program, taxpayers must provide nearly-complete transparency into their financial situation and provide information about their foreign bank account. Additionally, participation in the OVDP may be limited if the government has already begun investigating the taxpayer for any issue, regardless of whether it is related to the offshore account. Taxpayers should consult with an experienced tax attorney to determine whether participation in the OVDP is right for them. Every taxpayer has a difference set of facts and circumstances surrounding their case and only a tax attorney with experience with the OVDP can provide valuable advice with regard to their next steps.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in representing taxpayers in a myriad of different tax situations. From assisting with income and non-income tax audits and examinations, to representing taxpayers in full-blown civil or criminal proceedings, our team of zealous advocates are ready to put their best foot forward in protecting your best interests. Don’t lose sleep over a foreign bank account. Take the first step and contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation. Also, be sure to check out our YouTube channel for helpful tax information.