How And Why To Bring A Foreign Bank Account Into Tax Compliance Now

Twice in the last three years, the IRS has offered taxpayers with undisclosed foreign assets an opportunity to voluntarily disclose the unreported assets, pay back taxes and penalties, and avoid more severe penalties and criminal prosecution. These voluntary disclosure opportunities were well-timed with the success achieved by the U.S. Department of Justice (DOJ) and the IRS in obtaining once-"secret" Swiss banking details from UBS, and criminal prosecutions of US taxpayers who did not report and pay tax on foreign income.

The two disclosure programs together resulted in some 30,000 taxpayers coming forward and reporting offshore assets at numerous financial institutions in multiple foreign countries around the world. The programs also yielded a vast database of information for US law enforcement agencies about offshore banking, the financial institutions and people, like bankers, trustees and lawyers, who facilitated non-compliant offshore banking. Armed with this information, the US has looked beyond UBS and Swiss banks and is now investigated other banks, including banks in Israel, India and Liechtenstein, for their roles in facilitating US tax fraud by providing non-compliant banking services.

At the same time, other countries, most notably Germany and the United Kingdom, joined in the pressure against foreign banking secrecy. Switzerland and other "tax havens" have been made to sign many tax information exchange (TIE) agreements and have agreed to new standards of financial transparency. The cumulative results of this multi-prong offensive has been the elimination of foreign banking secrecy vis-a-vis governmental tax authorities.

Still, there are US taxpayers who have chosen not to participate in the IRS voluntary disclosure programs and have not brought their foreign assets into tax compliance, notwithstanding the significantly greater risks of discovery. Such taxpayers must confront the challenges of continuing to maintain a non-compliant foreign account, the probability of discovery, and the massive and crippling fines and potential criminal tax fraud consequences that would ensue. While the two voluntary disclosure programs have ended, there still exists a means of bringing a foreign account into tax compliance and avoiding criminal prosecution.

The Continuing U.S. Offensive Against Banking Secrecy

In 2009, U.S. prosecutors achieved a staggering victory against UBS, forcing the largest Swiss bank to settle criminal and civil charges that it aided and abetted tax fraud by assisting Americans to hide funds from U.S. taxation. UBS was also compelled to disclose to the IRS the identities of thousands of Americans with formerly "secret" Swiss accounts. This was a stunning breach of hitherto ironclad Swiss banking secrecy. To date, dozens of Americans with accounts at UBS and other foreign banks have been prosecuted, and 150 grand jury investigations have been opened against taxpayers with foreign accounts. Most of the criminal charges have resulted in guilty pleas, with punishment ranging from probation to jail terms, and significant monetary penalties of half the balance in the foreign account.

Since its victory against UBS, the U.S. has been relentless in its offensive against foreign banking secrecy, pursuing other banks in...