U.S. AND SWISS GOVERNMENTS BROKER DEAL ON SWISS BANK COMPLIANCE

The IRS and Swiss banks have formed a deal that could expose Americans who hid their assets in Swiss banks to avoid tax liability. The long running dispute between the IRS and Switzerland might finally come to a resolution with the Swiss banks complying with FATCA (Foreign Account Tax Compliance Act). Those with offshore accounts should consult with an offshore bank account attorney before time to make a voluntary disclosure to the IRS runs out.

Under the agreement, Swiss banks will be able to settle any outstanding U.S. charges if they divulge information about their American accountholders, such as account value and names. Swiss banks that helped their U.S. clients in evading taxes will be penalized, a senior Justice Department official has stated. Penalties are expected to amount to more than $ 1 billion. U.S. officials have warned American accountholders with funds in foreign banks to declare them immediately to the IRS under the OVDP (Offshore Voluntary Disclosure Program).

In 2008, a former employee of the Swiss global financial services institution, UBS, made a statement that the Swiss bank was actively helping U.S. Citizen Accountholders to evade US tax liability. This sparked the United States law called FATCA (Foreign Account Tax Compliance Act), which not only requires individuals to report their financial accounts held outside of the United States, but also compels foreign financial institutions to report to the Internal Revenue Service (IRS) about their American clients.

The United States Department of Justice is taking active steps to charge and prosecute suspect institutions and individuals. UBS had to pay $780 million to the IRS and turned over the names of more than 4,000 U.S. taxpayers holding secret accounts to settle U.S. charges, ending decades of Swiss bank secrecy. Following this scandal, earlier this year, Wegelin and Co., Switzerland’s oldest bank, ceased its operations after confessing to helping U.S. taxpayers hide their assets abroad. Fourteen other Swiss banks remain under criminal investigation for similar charges. Earlier in August, Edgar Paltzer, a high profile Swiss lawyer, was charged for helping American taxpayers hide their assets abroad. Paltzer pleaded guilty and agreed to cooperate with the U.S. authorities.

The latest agreement would create four categories of banks and cover a period from 2008 to 2014. The aforementioned Fourteen Swiss banks under criminal investigation by the U.S. would be under the first tier. The second would include institutions that agree to either divulge account holder information or pay penalty (or both) in order to delay or bypass prosecution. The third would be comprised of banks that can prove that they were not involved in helping U.S. Taxpayers evade taxes. The fourth would consist of local Swiss banks that are not affected by the FATCA.

This is a landmark agreement because it allows Swiss banks to move on from the past criminal charges placed on them by the U.S. Department of Justice. Jeffrey Neiman, the lead prosecutor in the UBS case states that Swiss banks will readily choose deals with the Justice Department to avoid U.S. scrutiny over protecting their remaining American clients.

Notably, this agreement was preceded by Switzerland’s Parliament vote against a different plan for a sweeping settlement, because of concerns about violation of the country’s sovereignty. However, unlike the above-mentioned plan, this deal does not mandate approval from the Swiss parliament.

This is just the beginning of offshore tax enforcement. U.S. officials are reaching deals with financial institutions and banks of several other countries including Singapore, Hong Kong, Israel, and Lebanon.

FATCA mandates foreign financial institutions to enter into an agreement with the IRS to identify their U.S. account holders and to disclose the account holders’ names and account balance information and specifics. If US persons choose to make payments to non-compliant foreign financial institutions, they are required to withhold 30% of the gross payments. US persons must now report any foreign financial assets or accounts worth more than US $50,000 on a new Form 8938. A 40% penalty on understatements of income would be applied in case of undisclosed foreign assets.

Vic Abajian is a former IRS attorney and known offshore bank account lawyer. He continues to assist clients in making disclosures to the IRS under the 2012 OVDP and through other means. The time to make a disclosure, however, expires when the IRS obtains your information. Accordingly, analyzing your options in a timely manner is critical.