On Dec. 8, 2008 Lichtenstein entered into a tax treaty, which will allow the Internal Revenue Service (“IRS”) access to foreign bank account information even though there is no evidence of tax fraud. The treaty, which is known as a Tax Information Exchange Agreement (TIEA), will provide the United States with access to banks and other information needed to enforce U.S. tax laws. The TIEA will apply in both civil and criminal tax cases. The TIEA provides that information will be provided without regard to whether or not the conduct being investigated would constitute tax fraud under Lichtenstein law. Nor is there any requirement that there be a tax fraud investigation under way in the United States.
The type of information available to the IRS is very broad. For example, the TIEA contemplates Lichtenstein to provide the following non-exclusive types of information:
1. Information held by banks and other financial institutions including nominees and trustees acting in an agency or fiduciary capacity;
2. Information regarding the ownership of companies, including information on all persons in the ownership chain 3. In the case of trusts, information on the trustees, settlers and beneficiaries;
4. In the case of foundations, information on the founders, members of the foundation council, and beneficiaries.
The TIEA permits the Internal Revenue Service not just to obtain documents, but also to arrange for Lichtenstein officials to take the depositions of witnesses. The TIEA contemplates that IRS officials may be present at these depositions.
The TIEA will apply to information related to 2009 and later years. However, it will allow for the furnishing of documents created prior to Jan. 1, 2009 provided that it is related to an investigation for years after 2008. Indeed the appendix to the TIEA gives the following example: “…if assistance is requested with respect to a taxpayer’s bank transactions occurring after December 31, 2008, and documents such as, but not limited to, a signature card for the account in question were executed prior to January 1, 2009 the parties would exchange the documents.”
Given the significant criminal tax problems, as well as civil tax problems that could arise from the IRS obtaining information regarding unreported income secreted in offshore bank accounts, it would be a good time for U.S. citizens with “secret” accounts to consult with a tax attorney to see how these tax problems should be dealt with. One way is through a voluntary disclosure. However, voluntary disclosures are not without risks, and all of the facts and circumstances need to be considered.