You got a letter from your Swiss bank – Should you enter the OVDP?

Real advice from a real lawyer on if you should enter the Offshore Voluntary Disclosure Program

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

foreign-accountsU.S. Citizens that held Swiss bank account are getting lots of mail and it’s not junk mail. So far 106 Swiss banks have entered into non-prosecution agreements with the U.S. Department of Justice. These agreements allow them legal protection for their crime of aiding U.S. citizens in evading their tax responsibilities. In an effort to come clean these banks must now verify that their clients did actually report their foreign account earnings on their income tax returns and appropriate FBARs.

If their customers cannot provide sufficient documentation that they have either reported their accounts on prior tax returns or are currently involved in a voluntary disclosure program the bank must pay 20% of the highest account balance to the U.S. Government as a penalty. The bank then is able to go after the client and try to reclaim the funds that they paid to the U.S. Government. Talk about a headache.

Decision Time

If you completely disclosed your offshore accounts and appropriately filed the correct forms then this letter should not cause you much alarm. Simple copy and submit the requested documentation and the chapter is closed. If you did not disclose your account or did so incorrectly you have a choice – should you enter into a government disclosure program? Let me tell you why I think you should.

  • Banks are pursuing clients – I’ve had clients come to me with letters from U.S. law firms seeking reimbursement on behalf of the Swiss banks. It is not a vain threat, they will come after you. It’s in your best interest to show the bank that you are in compliance and you are making efforts to do an Offshore Voluntary Disclosure.
  • Willful or Not – Due to recent changes in the offshore disclosure programs U.S. residents now have two options. For those that can prove that their conduct was non-willful they can follow the Streamlined Filing Procedures (Streamlined) and easily, electronically file the necessary documentation and pay the associated lesser penalty. For those that willfully evaded their tax responsibility the Offshore Voluntary Disclosure Program (OVDP) offers you an avenue to come clean, pay a penalty, and have legal protection for your civil and criminal crimes.
  • You can “Opt Out” – At any point in either voluntary disclosure program you have the right to opt out of the program. There is some risk, but if you have reasonable cause to make an argument with the Department of Justice you can leave a program.
  • Nothing isn’t an option – Clients sometimes want to chose the wait and see approach and see if they happen to be lucky and are passed over by the IRS. Moving the money to another bank will only compound your problem and does not clear up the past error that is currently in question. Further trying to conceal your funds without disclosing them is a bad, bad choice.

You don’t have to make a choice on your own. I strongly recommend that you meet with qualified legal counsel that is experienced with these specific cases. This is new legal territory and only an experience tax attorney can help you make the best decision for your predicament.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

Freeman Tax Law

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