We’ve written much about the ability of the IRS to discover unreported Swiss accounts, and we need not repeat warnings about criminal prosecution and onerous fines and penalties in the event that the IRS learns of undisclosed accounts.
What is new, however, is that the IRS will soon have direct, unimpeded, easy access to banking information from hundreds of Swiss banks. In a statement released by the U.S. Department of Justice (DOJ) and Swiss Federal Department of Finance on August 29, 2013, both sides reached an agreement whereby almost all Swiss banks will soon report to the IRS about Swiss accounts “in which U.S. taxpayers have a direct or indirect interest”, including accounts owned by U.S. persons, or where U.S. persons are beneficiaries, signatories, hold powers of attorney or have other incidents of ownership. In exchange for the provision of information to the IRS, the DOJ will not prosecute these banks as it did against UBS and Wegelin.
The new mechanism for the provision of account details and ownership information will not be held up by any Swiss banking secrecy laws. There will be no need for “John Doe” summonses, court orders or approval of the Swiss Parliament or Swiss Federal Tax Administration. The bar for reporting to the IRS is very low, only $50,000, which means that even smaller accounts will be reported. Reporting will be by each bank directly to the IRS. Essentially, any previous pretense of Swiss banking secrecy has now evaporated.
The only Swiss banks not eligible for the new agreement are those fourteen banks which are already under U.S. criminal investigation for aiding and abetting U.S. tax fraud, and this group includes Credit Suisse, Julius Baer, Pictet, Frey, Zurcher Kantonalbank, Basel Kantonalbank, the Swiss unit of HSBC and the Swiss units of three Israeli banks. Hopefully, if you are a U.S. taxpayer and have a non-compliant account at one of these fourteen banks, you have already made a voluntary disclosure to the IRS of your Swiss assets and income, or you have hired criminal tax counsel.
Now, if you are a U.S. account holder at one of the hundreds of Swiss banks that will soon begin reporting directly to the IRS, and you still have not brought your account into US tax compliance, you have a very short window to do so. The IRS Offshore Voluntary Disclosure Program is still open. However, if you wait until the IRS already has your information from a foreign bank, you will not be eligible to make a voluntary disclosure; you must come forward before the IRS has your name.
One interesting aspect to the U.S.-Swiss Agreement is that DOJ is especially interested in outward flows and transfers from Swiss banks to other banks, whether in Switzerland or in other countries. The Swiss banks are obligated to provide this information to the US authorities. In other words, if you closed your Swiss account in order to avoid scrutiny or disclosure to the IRS, and you moved your funds to a different account, DOJ and the IRS will soon have this information. In such a case, pre-emptive voluntary disclosure is especially advisable, because US tax investigators and prosecution pay particularly attention to such “leaver accounts”, i.e., those that have left the bank. Indeed, it is entirely likely that the DOJ will use this U.S.-Swiss Agreement as a template for agreements with banks in other coutries as DOJ and the IRS follow the money across the globe.
The clear conclusion is that there is nowhere left to hide. Non-compliant, “hidden” accounts will soon be disclosed to the IRS no matter where they are. Proactive action is imperative. As we have warned many times previously, “come to us before the IRS comes to you.”