Until recently even some well-informed tax attorneys assumed that short of disclosure under the Foreign Account Tax Compliance Act (FATCA) in 2013, the IRS would have a difficult time getting information from Swiss banks without litigation. As a result some owners of Swiss financial accounts assumed that they could avoid disclosure to the IRS by closing their offshore account prior to 2013. While there are various treaties which require Swiss banks to turn over account information with regard to individuals who have committed tax fraud or tax evasion, in the past this has been interpreted as requiring the IRS to provide among other things the name of the taxpayer it was investigating. Apparently not any more!
In what appears to be the final nail in the coffin of alleged Swiss Bank secrecy, a committee of the upper house of the Swiss Parliament recommended that the upper house approve a proposed addendum to the June 2010 ratification resolution on the 2009 protocol to "clarify" that so called nameless, behavioral-pattern based requests are allowed under the 1996 double taxation treaty with the U.S.
In a related development on November 16th the Swiss Federal Council approved an amendment to the ordinance implementing the Swiss-U.S. double taxation treaty to provide notice to U.S. clients of Swiss banks who are the subject of so-called behavioral-pattern based administrative assistance requests from the U.S. Notice will be provided by publishing the U.S. administrative request in the Federal Gazette. Unfortunately the Federal Gazette is not published in English, and the Swiss Federal Tax Authority (SFTA) has been tasked with the job of alerting the U.S. media.
So what are the requirements of a nameless behavioral-pattern based request?
1. It must indicate why the requested information is necessary and relevant;
2. It must give a detailed description of the alleged behavioral pattern;
3. It must explain why it can be assumed that the person fitting the alleged behavioral pattern has not fulfilled his legal obligation; and
4. It must show a credible act of active, fraudulent behavior by the bank, or its employees.
It is not difficult to see the IRS putting together a number of these requests to find the names of previously unknown taxpayers, and it may well explain the recent announcement by Credit Suisse (we wrote about this tax problem here) that it has been required by the SFTA to turn over the names of some of its clients to the IRS.