Did your Swiss Bank enter into a Non-Prosecution Agreement?

What does that mean for you and what actions should you take?

Jeffrey S. Freeman, J.D., LL.M

You may have recently received a letter from your offshore Swiss Bank mentioning that they have entered into a “non-prosecution agreement” with the U.S. Department of Justice (DOJ). Why did your foreign bank enter into this agreement and why did they notify you?

Why enter a “non-prosecution agreement”?

Recently, 106 banks in Switzerland have entered into non-prosecution agreements with the DOJ. These foreign banks have reason to believe they violated U.S. tax laws and are proactively trying to resolve these issues with the DOJ. With the recent coverage of UBS and offshore Credit Swiss banks, these 106 banks are attempting to clean up their transgressions and minimize their penalties. According to the Bloomberg January 26, 2014 article, “the program is the largest assault in a five-year U.S. Department of Justice crackdown on offshore tax evasion”.

swiss-bankAs part of the non-prosecution initiative the participating banks must disclose detailed information about their American accounts. They must describe how they helped Americans hide their assets, disclose the total number of U.S accounts since 2008, provide the highest dollar value that these accounts held, and turn over the employee names who managed these assets. To certify these findings the banks must use independent examiners and provide the information to the DOJ.

The price tag for banks participating in non-prosecution agreements with the DOJ is very high. Banks must pay 20 percent of the value of accounts not disclosed to the IRS on August 1, 2008, 30 percent for accounts opened between then and February 2009, and 50 percent for accounts opened after this date.

Why were you notified of the “non-prosecution agreement”?

In order to comply with the stipulations of the non-prosecution initiative you Swiss bank must determine which account have been disclosed to the IRS. In order to do this they are requesting that you submit your tax documentation (FBARs, Form 1040 Federal Individual Income Tax Return with the account declared, and W-9 as appropriate). Assuming you followed the correct procedures and disclosed your account all along to the IRS this should be nothing more than digging through your files and submitting copies.

But, what if you have yet to disclose your offshore account? Should you keep your account open? Many taxpayers have closed their accounts and moved them to another foreign bank, but it is not necessarily the best option. Aside from the potential civil and criminal penalties that might be imposed as a result of such actions, the implementation of FATCA has changed the way bank secrecy laws work for U.S. taxpayers around the world.

Foreign bank secrecy laws can no longer protect U.S. taxpayers. The U.S. Department of Justice “John Doe” Summonses are currently being used to provide “account migration” information, which reveals the names of U.S. foreign account holders that have transferred assets to other banks. Simply closing a foreign account and moving the funds elsewhere is not a good option because it is likely that the U.S. government will find out about it anyway.

If you find yourself in this predicament and need to determine the best way to handle your undisclosed fund contact a tax professional today to help you determine the best course of action. There still may be time to take advantage of voluntary disclosure programs, but seek professional guidance.

About Freeman Tax Law

Freeman Tax Law is equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA) and Offshore Voluntary Disclosure Program (OVDP). In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.

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