This leaves the question of how will other UBS offshore account holders, and owners of other Swiss bank accounts at other banks will be impacted. Those individuals who have already made voluntary disclosures to the IRS are not impacted. They have already committed to going forward, and there is no good way to unring that bell.

I expect there will be a good deal of buyer remorse among holders of offshore financial accounts who already entered the voluntary disclosure program. To those I would point out several things. First, everyone’s situation is different. The fact that the failure to provide a Form W-9 is not by itself tax fraud or the like, doesn’t mean that there might be other facts in your case which would constitute tax fraud. Second, in order to dispute the decision of the Swiss Federal Tax Administration (FTA) to turn over bank records would have required the filing of an action in Switzerland. Doing so would trigger the provisions of U.S. law requiring someone who files such an action to serve a copy of the pleadings on the U.S. Attorney General. The failure to do so would be a criminal offense. The lead prosecutor on FBAR (Foreign Bank Account Report) cases stated last year that the IRS intended to prosecute anyone who failed to follow that law.

Third, it would not have been possible to obtain a decision from the Swiss Administrative Court prior to the expiration of the tax amnesty program so if you had filed suit you would have had to take the risk of losing, and incurring higher FBAR penalties.

Fourth, one reason for entering the voluntary disclosure program was so that you could sleep at night. Litigating a tax fraud case in Switzerland is not calculated to induce sleep. Other reasons to enter the voluntary disclosure included the repatriation of funds, and removing them from the grip of greedy Swiss bankers who were charging a fortune for their services, and paying little in the way of interest. Not to mention avoiding leaving the headache of an offshore bank account for your children, and grandchildren to clean up. Leaving the funds in undisclosed offshore bank accounts also would force you to continue to commit tax fraud each year as you file your tax returns, and to violate the Bank Secrecy Act, by continuing to fail to file Foreign Bank Reports (FBARs) each year. Not a pretty picture.

Fifth, this decision obviously doesn’t apply to anyone with offshore accounts outside of Switzerland. The tax treaties with most countries make it much easier for the IRS to obtain information regarding tax evasion.

If you have offshore bank or financial accounts, and you would like advice contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

The Taxpayer Advocate’s Report details how the IRS files tax liens without regard to whether or not the taxpayer has assets, and despite the fact that in many instances the filing of a tax lien does not protect the IRS, and only exacerbates the taxpayer’s inability to pay. The Report also points out that the Internal Revenue Manual puts obstacles in the path of their employees who decide not to file a tax lien-- requiring managerial approval, and documentation of any decision not to file a tax lien.

One would only hope that the IRS tax Collection Division takes serious note of the criticisms by the Taxpayer Advocate, and that it not continue to file tax liens as method of punishing taxpayers; however, the IRS responses to the Report make clear that Congressional action will be necessary for any significant tax lien relief.

Taxpayers with tax problems must therefore continue to explore other avenues of relief including offers in compromise, installment payment agreements, audit reconsideration, and bankruptcy to resolve their tax problems.

If you have tax problems call the tax lawyers at Brager Tax Law Group, Inc. for a consultation.

Another interesting point is that the criminal tax fraud case was brought only after the FTB issued notices to the corporation requesting tax returns. Sounds like Mr. Leech should have paid more attention to his mail!

If you have a tax problem with the California Franchise Tax Board, the Internal Revenue Service, or another California tax agency call the tax litigation lawyers at Brager Tax Law Group, A P.C.

If you own or have authority over a foreign financial account, including a bank account, brokerage account, mutual fund or other type of financial account, you may be required to report the account yearly to the Department of the Treasury. Under the Bank Secrecy Act, each United States person must file a Form TD F 90-22.1, Report of Foreign Bank and financial Accounts (FBAR), if:

• The person has a financial interest in, or signature authority (or other authority that is comparable to signature authority) over one or more accounts in a foreign country, and
• The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.

Hardly earth shattering. On the other hand these IRS fact sheets are generally intended to provide basic information to individuals unfamiliar with an area of tax law.

If you have an offshore financial account, and would like to have your questions answered call one of the tax lawyers at Brager Tax Law Group, A P.C. for an appointment.

If the decision is upheld many U.S. persons will no doubt argue that any prosecution of them on the basis of evidence provided illegally is tainted. Whether that argument will fly remains to be seen. For a copy of the court’s decision (in German) click here: Download file 1 Download file 2 Download file 3 Download file 4 Download file 5 Download file 6

Swiss tax attorneys have been quoted as saying that the court’s order will have no effect on those 4,450 names being turned over pursuant to the agreement entered into between UBS, and the IRS last August.

If you have offshore bank accounts, and still have not decided whether to make a voluntary disclosure contact the tax attorneys at Brager Tax Law Group, A P.C.

• G-20 leaders signaled a new willingness to take action against uncooperative tax havens, the changes made by Liechtenstein and Switzerland set off a chain reaction in other bank-secrecy nations. Places like Luxembourg, Austria, Andorra, Monaco, and others also pledged for the first time to share tax information and cooperate with international tax enforcement

• Offshore tax abuse needs to be taken into account when developing international trade policy. Specifically, there ought to be a policy against rewarding trading partners that refuse to adopt the growing global consensus against tax evasion. The nation of Panama, for example, hopes to conclude a free trade agreement with the United States in the near future. But at the same time, after pledging in 2002 to negotiate a tax information exchange agreement with the United States, Panama is stonewalling. The United States should insist that Panama and other nations agree to tax information sharing before extending to them the advantages of a free-trade agreement.

Clearly the pressure is mounting on secrecy jurisdictions, and as I have said before whether your offshore account information will find its way to the IRS immediately is unknown, and unknowable. Nevertheless the handwriting is on the wall, and in five or ten years from now the ability to commit tax fraud by hiding funds in an offshore bank account will probably be a quaint curiosity that you can tell your grandchildren about.

In the meantime, if you have offshore financial accounts you have less than two weeks, until Oct. 15th, to enter the IRS tax amnesty program.

If you would like advice and assistance from our former IRS tax lawyers call Brager Tax Law Group, A P.C. to arrange a consultation.

1. Legally “Launder” Your Offshore Funds.

If your money is an offshore financial account it is difficult to spend in the United States. Banks keep copies of offshore wire transfers, and are required to report suspicious transactions to the Internal Revenue Service (IRS). If you bring cash back to the United States in excess of $10,000 you must declare it. Over the years people have come up with many methods of bringing the money back to the U.S., including credit cards tied to their offshore bank accounts—some have gone to jail. Any actions to hide the existence of the foreign bank accounts, e.g. moving them one from one country to another, or investing the funds in offshore real estate to avoid the reporting requirements could be construed as money laundering subjecting you to further criminal penalties.

If you participate in the offshore tax amnesty program you will then be able to bring the money back to the U.S., and enjoy the fruits of your labors. Or if you wish, you can continue to invest it abroad—it’s your choice.

2. Avoid Passing Along Your Tax Problems When You Die

No one lives forever. If you continue to have foreign financial accounts when you pass on you will bequeath all of your tax problems to your children and your spouse. For example, the foreign bank accounts must be declared on your estate tax return. Leave them off, and your executor has committed tax fraud. Put them on the return, and expose the estate to years of back FBAR penalties at the 50% rate, potentially wiping out your entire legacy. In addition, if your children and/or spouse become owners of your foreign bank accounts upon your death they will now have to report those foreign bank accounts, or face the same set of tax problems that you have now.

3. Sleep Better At Night

The one question that clients ask most frequently is “What are the chances I will get caught?” It is also the one question I can’t answer. The IRS has promised to devote significant resources to finding everyone who has an offshore financial account. I can safely say they won’t. Whether or not you will get caught no one knows. Nevertheless, the potential consequences of getting caught are so severe you have to ask yourself is it worth even a 5% chance of going to jail and losing everything to save some money. My answer is “no.”

Your answer may differ, but you need to think about it, and have an answer before October 15th. After all, who would have thought five years ago that almost 5,000 people who had been made promises of iron clad secrecy by the Swiss would now have their foreign bank accounts turned over to the IRS?

If you have a foreign financial account, and would like to discuss your situation with our former IRS tax attorneys please contact the Brager Tax Law Group, A P.C.

Clients sometimes ask why they should take advantage of the IRS Offshore Voluntary Disclosure Program. In it’s frequently asked questions regarding offshore financial accounts the IRS provided an example of what could happen to someone with a foreign bank account of $1million in 2003 that earns $50,000 per year who hasn’t filed Foreign Bank Account Reports, TD F 90-22.1 (FBAR). That person could, if they didn’t apply for tax amnesty, could incur taxes, penalties and interest of well in excess of $2.3 million. If the IRS determined that the non-reporting was due to tax fraud, the amount would be much higher. Under the tax amnesty, the amount due would be $386,000 plus interest. Nevertheless some people don’t want to file for tax amnesty. If the IRS example doesn’t convince you here are six more reasons.

1. Avoid Going to Jail

The failure to file an FBAR can result in criminal penalties of five years in jail and a fine of $250,000 or both for each year the FBAR is not filed. It is the policy of the Department of Justice to ask the court to impose actual prison time; probation is very rare in tax cases. If you are a CPA, a lawyer, or a doctor in addition to going to jail you will lose your license to practice so when you get out you will have difficulty finding a job. If you are not yet a citizen of the United States as a convicted felon you could be deported, or your ability to become a citizen could be impacted.

2. It’s Cheaper Than You Think.

The person in the IRS example pays about $386,000 on $ 1,300,000 of income if he participates in the tax amnesty. In the IRS example the first million dollars was earned prior to 2003, as a result that one million dollars is never taxed. Had the amount been properly reported tax of $455,000 would have been paid (assuming a 35% tax rate). If the unreported income prior to 2003 was greater the savings are greater. For example, assume $3,000,000 of unreported income prior to 2003, and the same amount of interest earnings between 2003 and 2008. The amount paid pursuant to the tax amnesty will increase to $786,000. However, had the income been properly reported the tax that should have been paid would have been $1,155,000. Not a bad deal when you think about it.

3. Avoid Committing Perjury in 2010

Every year when you file your income tax return you are required to answer whether or not you have a foreign bank account. If you answer no you have committed the felony of filing a false tax return punishable by 3 years in jail, and a fine of $100,000. Up until now some people could reasonably say that they didn’t understand the requirement, or that their accountant hadn’t asked them about it. When the time comes to file your 2009 tax return in 2010 you can be sure that your accountant will be asking about your offshore accounts. Some accountants may require you to sign a statement that you don’t have a foreign bank account in order to protect themselves. After this year it will be much more difficult to argue that you were ignorant of the law—even if it is true.

Closing the offshore account now won’t help. If an offshore financial account has more than $10,000 in it at ANY TIME during 2009 it must be reported in 2010.

Three more reasons tomorrow.

In the meantime if you have tax problems including an offshore financial account call the tax attorneys at Brager Tax Law Group, A P.C. for a consultation.

The IRS had previous announced in March of this year that individuals and entities who had an interest in offshore bank accounts, and who had failed to file FBARs who voluntarily came forward, and notified the IRS of the existence of their offshore financial accounts would qualify for a reduced penalty regime. Normally the penalty for failing to file an FBAR on Form TD-F 90-22.1 can result in a penalty equal to the greater of $100,000 or 50% of the balance in the offshore account. In addition, non-filers of FBARs could be subject to criminal tax penalties, as well as a civil tax fraud penalty of 75% of any taxes that were owed. For more details on potential penalties please review our earlier post.

The IRS has said it extended the deadline in response to the requests of numerous tax attorneys and other tax professionals who requested additional time. The IRS stated that there would be no further extensions of the deadline for the Offshore Voluntary Disclosure program.

We here at Brager Tax Law Group, A P.C. were happy to see the IRS extend the deadline for this tax amnesty program since we are still hearing from clients who have only recently become aware of the FBAR filing requirements.

If you would like to consult with one of the tax lawyers at Brager Tax Law Group, A P.C. please call our office for a consultation.

Q: If I don’t apply for tax amnesty how will the IRS find out about my Swiss bank account.

A: The short answer is: Maybe they will, maybe they won’t, but the consequences of the Internal Revenue Service (IRS) finding out are very severe, and you have to decide whether you can live with that. Non-reporting of foreign bank or foreign financial accounts can result in criminal prosecution resulting in 5 years in jail, and a $250,000 fine.

Q: Can’t you tell me anything more about how the IRS will find out about my secret Swiss bank account if I don’t enter the IRS offshore voluntary disclosure program?

A: Many people engaged in tax evasion get caught when their ex-spouse, or a disgruntled employee turns them in. It never ceases to amaze me how two people who once loved each other have absolutely no qualms of seeing their ex go to jail. Others get caught by random tax audits. Then of course there was the case of LGT bank where the German government bribed a Liechtenstein bank official to turn over the names of hundreds of its clients. The names of a number of U.S. citizens on that list made its way to the IRS; and who would have guessed even two years ago that UBS in cooperation with the Swiss government would have been handing over almost 5,000 names of supposedly secret Swiss bank accounts?

Q: Does the IRS really put people in jail for not filing Foreign Bank Account Reports TD F 90-22.1 (FBARs)?

A: Up until recently there have been very few prosecutions related to offshore bank accounts. In the last few months the IRS has stepped up the number of cases with four guilty pleas. The IRS says it has about 150 cases of offshore tax evasion involving UBS Swiss bank accounts being looked into by its Criminal Investigation Division. I expect that many of those cases will end with criminal tax prosecutions.

If you would like more answers to your FBAR questions you can seek advice from the former IRS tax attorneys at Brager Tax Law Group, A P.C.

Those who fess up before that date will not only be spared the possibility of jail time, but will also be eligible for reduced penalties. The normal civil penalties for failing to file a Foreign Bank Account Report, TD F 90-22.1 (FBAR) is the greater of $100,000 or 50% of the balance in the account. The FBAR penalty can be imposed for each year there is a balance in the combined accounts greater than $10,000. The civil tax fraud penalty is 75% of the amount owed. For a more detailed list of possible penalties I have them listed here.

Our tax litigation attorneys are consulting with dozens of clients with offshore bank accounts. If you would like our advice contact Brager Tax Law Group, A P.C.

Of course the names of who is on the list has not been disclosed, nor have the criteria for which Swiss bank accounts will be on the list been revealed. No such information is expected for 90 days. Clearly the intent is that some of the Swiss bank account owners who are not on the list, but don’t know they are not on the list will be motivated to participate in the IRS tax amnesty program which closes September 23rd.

Our tax attorneys are counseling many clients on the ins and outs of the IRS voluntary disclosure program. If you have a foreign bank account, and are interested in finding out more, please contact the tax litigation lawyers at Brager Tax Law Group, A P.C.

Most interesting to me about the case is that the IRS is reaching lower down the food chain. The amount of the unpaid tax was somewhere between $200,000 and $400,00 spread over a 5 year period. Assuming a 33% tax rate this suggests unreported income of as little as $120,000 per year. While this is hardly chicken feed, it shows the IRS willingness to prosecute medium size tax evasion cases.

If you have a foreign financial account, or any kind of tax problem contact the tax lawyers at Brager Tax Law Group, A P.C.

Some tax lawyers speculate that it will be only the names of the largest UBS account holders that will be disclosed, but I tend to disagree. Any settlement would have to provide the Swiss with a fig leaf to argue that they had not compromised their privacy laws. One way of doing this would be to loosen the interpretation of tax fraud under Swiss law, and provide the names of individuals who engaged in some activity suggesting they were covering up the existence of the offshore account. For example, holders of numbered accounts, or accounts held in the name of dummy corporations or trusts, or perhaps dual citizens of the U.S. and other countries who did not use their U.S. passports to open the accounts.

Once the settlement terms have been announced it is unknown how quickly names of UBS Swiss bank account holders will be turned over. However, once the IRS has the names it will be too late for those individuals to participate in the IRS tax amnesty, and receive the benefits of the offshore voluntary disclosure program.

If you have questions about the FBAR tax amnesty or have other tax problems feel free to contact the tax controversy lawyers at Brager Tax Law Group, A P.C.

Once a list is turned over an offshore bank account owner whose name is on the list would no longer qualify for the IRS tax amnesty program, and would potentially be subject to both civil and criminal tax fraud charges, as well as the 50% FBAR penalty.

Time may be of the essence for holders of UBS Swiss bank accounts. We strongly recommend consulting immediately with a knowledgeable tax lawyer to find out more about the terms of the IRS voluntary disclosure program.

If you have questions the ex-IRS tax attorneys at Brager Tax Law Group, A P.C. are available for a consultation.