Offshore Account Disclosure Basics – Part 1: Secret or Undisclosed Foreign Accounts Are Secret No More

The End of Secret Offshore Banking

At the start of our new millennium, banking secrecy in various havens around the world, notably Switzerland, appeared to be untouchable.  Yet just a few years later that secrecy is in tatters, with most of those countries (that relied heavily on banking for their income and prosperity) agreeing to inform the US government about US citizens and legal residents who maintain, or who have had, accounts in their banks.  This came about when the US used its criminal codes to indict some Swiss bankers, UBS specifically, for conspiring with US customers to evade taxes.

Why did the US decide to go after UBS after decades of knowing that billions of dollars had been stashed in its accounts by US citizens and residents?  That decision coincided with the Great Recession and financial crisis that began in 2007, when the income of the government was falling and the outgo was increasing.  In short, the US needed the tax revenues.

UBS, the Swiss bank, with its survival as an international bank at stake, soon caved in to the US demands.  It sought and received approval from the Swiss parliament to tell all about US-based account holders.  With the Swiss laws requiring secrecy repealed, other Swiss banks were contacted by the US, and generally have complied.   This unraveling of bank secrecy – aided by the muscle of the US tax law known as FATCA (Foreign Account Tax Compliance Act) has spread to other locations, such as those in the Caribbean, Channel Islands, and other locations.

Foreign Bank Secrecy Is Done: Your Foreign Accounts Must Be Disclosed to the US

Today there is nearly nowhere in the world to stash funds or securities out of scrutiny from the US taxman.  But it gets worse in that even if the owner moves the assets from one bank to another or home to the US, many banking institutions and countries have or will be compiling ‘leaver lists’ – literally lists of those who left the country or institution ahead of US tax enforcement.  These records will be made available – some already have been – to the US authorities.  These lists will eventually be used for tax enforcement action.

Offshore Tax Evasion Penalties

The penalties for offshore tax evasion are severe.  Willful evasion is a criminal offense and prison terms can be – and have – been imposed.  And while not every instance of offshore tax evasion leads to criminal prosecution, the legal fees for a defense attorney who will campaign to avoid prosecution, can easily exceed $100,000.

Even if you successfully avoid criminal prosecution,  the financial penalties associated with undisclosed foreign accounts are breathtaking.

The tax code, at a minimum, requires that all the taxes for the years in question be paid, along with interest and usual underpayment penalties.  States with income taxes, such as California, are looking to collect theirs, too.  But it is the IRS that can levy some penalties that could devastate the worth of the accounts and actually exceed the value of the account.  This is a bleak prospect for any account holder indeed, and most alarming.

The IRS has set up a program that is available to anyone who voluntarily makes contact and brings his/her tax returns and other required reports up to date.  That program offers some relief to those who want to keep a portion of the value of the account and avoid criminal prosecution.  If handled properly the Offshore Voluntary Disclosure Program of the IRS is usually the best way to go.  See Offshore Account Disclosure Basics – Part 2, Tax Amnesty: The IRS 2012 Offshore Voluntary Disclosure Program for a discussion of the IRS’ 2012 Offshore Voluntary Disclosure Program (known as OVDP), and related tax matters.

For US individuals with an undisclosed foreign account, now is the time for action.  Call (415) 745-1924 to speak immediately with experienced Offshore Voluntary Disclosure Program tax attorney Andrew L. Jones. You will receive an immediate, free, thorough, and completely confidential consultation. We are available by phone nationwide or in person at your choice of 4 different offices throughout California. We answer your calls from 9 am-9 pm PST, 7 days a week. After hours, please leave a message or visit our contact form and we will reply the next morning.

Attorney Andrew L. Jones practices in tax law, business law, and estate planning from offices in San Francisco, Palo Alto, Walnut Creek, Los Angeles, Irvine, and San Diego. Jones received his J.D. and LL.M. in Taxation from Loyola Law School, and posts regular updates and analysis on OVDI and OVDP at www.AndrewLJones.com. He can be reached at .