Based upon anecdotal evidence, foreign bank account owners are opting to enter the Offshore Voluntary Disclosure Program (OVDP) more frequently in the last few months. In November, I blogged about why quiet voluntary disclosures are becoming more risky. As a follow-up, here are a two more reasons why quiet voluntary disclosures may be riskier now than six months ago.
Electronic Filing of Foreign Bank Account Reports (FBARs) is Now Required
As of July 1, 2013 the Financial Crimes Enforcement Network (FINCEN) began requiring that all Foreign Bank Account Reports (FBARs) be filed electronically. This includes all late filed FBARs for prior years. Therefore, as part of a quiet voluntary disclosure the back FBARs will be filed electronically which makes it very, very easy for the IRS to track them; since the Government Accountability Office (GAO) has previously criticized the IRS for failing to follow up on quiet disclosures it would not be surprising to see more quiet disclosures being targeted for tax audits.
Swiss Banks Are Getting Ready to Throw Their U.S. Clients with Swiss Bank Accounts under the Bus
At the end of August 2013 the Department of Justice and the Swiss Federal Department of Finance announced an "Amnesty Program" for Swiss Banks who wanted to obtain non-prosecution agreements from the Department of Justice. The joint statement sets forth a process by which all Swiss bank accounts other than those who are currently under active investigation by the Department of Justice had until December 31, 2013 to send a letter of intent asking to participate in the Program. Under the terms of the Program, and depending upon a series of factors including the banks' degree of culpability, and the dates that accounts were opened by U.S. persons, the Swiss Banks will be required to pay a penalty ranging from 20 to 50 percent of the maximum aggregate value of all of the funds in Swiss accounts held by U.S. persons. According to one press report around 40 of Switzerland 300 banks had signed up as of December 22nd. That number is probably a low estimate since private banks are not obligated to announce their intentions, and the reported number has necessarily been cobbled together from sources which are imperfect.
Under the terms of the program the Swiss Banks must provide aggregate information about the accounts they hold. At this point, the banks will not be turning over the names of any U.S. taxpayers. HOWEVER, most tax attorneys expect that the IRS will use the information provided by the Swiss Banks to initiate a second round of requests to the Swiss Banks which ultimately will result in the names of the U.S. account holders along with their bank statements, and related documentation being turned over to the IRS. The IRS is unlikely to make things pretty for those taxpayers who haven't gone into OVDP.
Why would a Swiss Bank be concerned about prosecution by in the United States? After all you can't put a bank in jail, and if the Swiss Bank doesn't have U.S. clients any more why would they care about what the U.S. Department of Justice thinks. The answer is that a bank that is convicted of a crime will be unable to use the U.S. financial system to clear their dollar transactions. Essentially that is a death knell for any bank since the U.S. dollar is still the reserve currency to the world.
If you would like to find out about all of your options from quiet voluntary disclosures to OVDP contact the tax litigation lawyers at Brager Tax Law Group, A PC for a confidential consultation.