Voluntary Disclosures Program & Swiss Accounts

Date: 02/26/12

Topic: Foreign Accounts

In an earlier post we wrote about the IRS’s voluntary disclosure program for those hiding assets in bank accounts overseas. This is a follow up post to that one, discussing some recent developments that have been going on in the courts. It will be of particular interest to those tempted to hide assets in a Swiss account.

Recall that the IRS’s voluntary disclosure program for foreign accounts that was reopened this year, allowing taxpayers to come forward on their own before the IRS finds them. The upshot is that the consequences of a voluntary disclosure are far less severe than the sometimes draconian measures exacted by the IRS when it discovers one’s tax evasion or tax fraud. For more on the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) Program, visit:

FBAR Compliance and Disclosure

Recently this month, on Feb. 2, 2012, Switzerland’s oldest bank, Wegelin & Co. (“Wegelin”), founded in 1741, found itself entangled in a U.S. federal court in Manhattan. Wegelin manages something in the neighborhood of $25 billion in assets, and was alleged to have “conspired against the U.S. in the amount of $1.2 billion” in taxes, according to the indictment, courtesy of the Wall Street Journal:

http://online.wsj.com/public/resources/documents/indictment02022012.pdf

Basically, Wegelin was accused of helping people evade U.S. income tax. The hearing date was Feb. 11, 2012, but Wegelin did not appear.

What makes this case unique is that it is the first time a foreign bank was indicted by the U.S. for helping people engage in tax fraud. In the past, the practice was that the IRS would compel the bank to disclose a client’s account data. Precedent appears to be changing.

The takeaway lesson from this appears to be that while, on the one hand, the IRS has gone “soft” with allowing people to make voluntary disclosures and (likely) avoid steep penalties, it has, on the other, also become more vigorous in its prosecution of tax evaders, breaking new precedent. For more on the IRS’s actual practice of how it treats taxpayers making a voluntary disclosure, read further at “The Solution” here:

Tax Evasion Fraud Representation

From a policy standpoint, the idea of the government balancing out its leniency with its uncompromising litigious spirit is quite sagacious. From the taxpayer’s point of view, this will further incentivize him to make a voluntary disclosure of his tax fraud.

For more on this story:

http://online.wsj.com/article/SB10001424052970203889904577199483877439236.html