The owner of a UBS offshore account has won a lawsuit in the Swiss Administrative Court barring UBS from turning over her name to the Internal Revenue (IRS). The reasoning of the Court was that the only evidence of tax fraud was the failure to submit IRS Form W-9, and this by itself was not sufficient to establish tax fraud, or the like which is a precondition to supplying information to the IRS under the terms of the Swiss Tax Treaty. The Swiss Government has indicated that it will respond to the decision on Jan. 27th.
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.