What’s New with Foreign Bank Accounts and Voluntary Disclosures?
by Asher Rubinstein, Esq.
With regard to the UBS matter, the SFTA (Swiss Federal Tax Authority) continues to transmit once-“secret” banking files to the IRS, as per the UBS settlement agreement. Americans whose UBS accounts are being revealed to the IRS and who have not already come forward and voluntarily disclosed their accounts can expect to be on the receiving end of an IRS investigation or subpoena and should consult with a tax attorney. Americans with accounts at foreign banks other than UBS must consider that the IRS is now targeting other banks, including but not limited to Credit Suisse, HSBC and Julius Baer, and these account holders must give thought to cleaning up non-compliant accounts before the IRS discovers the accounts.
Now that the UBS settlement is finalized (i.e., approved by the Swiss Parliament) and the transfer of account information to the IRS is proceeding, the IRS is analyzing the account information that it is receiving, launching investigations against account holders, and prosecuting account holders for not reporting the accounts and not paying taxes on income earned in those accounts. The IRS is also moving past UBS and investigating other banks, in other countries. India is one target of investigation. We also understand that the IRS is focusing on accounts in Israel. We are getting many calls from people with accounts in India and Israel, and also Hong Kong and Singapore, who are looking to put their banking affairs in order.
Also important are the subtle but significant changes in IRS voluntary disclosure practice. First, there are rumors that voluntary disclosures made after June 18, when the Swiss Parliament approved the UBS settlement, will not be accepted. The theory is that once the Swiss Parliament approved the settlement, disclosures are not sufficiently voluntary. In practice, however, we are still representing numerous clients who are still coming forward and making disclosures after June 18, and their disclosures are not being rejected.
Second, the “pre-clearance” process of the voluntary disclosure (whereby the IRS lets us know whether the IRS already has the name of the account holder, which would render the disclosure too late), has also changed, slightly but significantly. In the past, to request pre-clearance, we would only have to provide the individual’s name, address, social security number and date of birth. This is sufficient information whereby the IRS could tell us whether it already had knowledge of the individual, in which case pre-clearance would come back denied, or whether the individual was pre-cleared to continue the voluntary disclosure. Now, however, the IRS is asking for the name of the foreign bank in order to process the pre-clearance. The name of the bank is potentially incriminating information. If pre-clearance is denied, then the IRS already has the person’s name, plus the foreign bank, which makes investigation and prosecution easier for the IRS. The IRS has changed its procedure to require incriminating information in advance of any indication of acceptance into the voluntary disclosure program. This could have a chilling effect on future voluntary disclosures, because people will not be handing over incriminating information without the slightest indication of whether they will be accepted by the IRS. However, if the individual is not concerned with being rejected from the program (for example, the foreign funds are not illegal source funds), then it may still make sense to provide the bank information and proceed with the disclosure. The benefit of disclosure – lower penalties and avoidance of criminal prosecution – may outweigh the provision of potentially incriminating information, especially when there is little risk of non-acceptance into the voluntary disclosure program.
We can assist foreign account holders in addressing such risks, navigating the changing rules and procedures of the voluntary disclosure program, and cleaning up non-compliant foreign accounts.