Since January 1, 2013, three individuals and Switzerland’s oldest bank, Wegelin & Co., have pled guilty in cases related to foreign bank accounts. These prosecutions are the result of continued focus by the US Department of Justice and the Internal Revenue Service on those with financial accounts outside the US. Investigations are under way with respect to many more individuals (taxpayers and the professionals who may have assisted them) and institutions.
When the IRS announced its third voluntary disclosure program, the 2012 Offshore Voluntary Disclosure Program, this past summer, it was billed as an open-ended program. However, the IRS made it clear from the beginning that the terms of the program could change at any time going forward and that time may be running out. In that regard, Kathryn Keneally, assistant attorney general for the DOJ Tax Division recently advised, “It is a high priority for the [DOJ] to find those who continue to shirk their tax obligations, as well as those who would profit by helping them do so. The best deal for these folks is to come in and ‘get right’ with the IRS, before either the IRS or the [DOJ] finds them.” Keneally also warned, “Sitting it out at this point is extremely dangerous.”
In September 2012, the DOJ announced that it is investigating allegations of tax evasion and conspiracy by the Swiss branches of several Israeli banks. In December, one of those banks announced that it would assist taxpayers in obtaining the necessary documents to participate in the program, a move that is thought by some to signal the bank’s negotiations with the US government with respect to a potential resolution of any exposure it may have.
On January 3, 2013, as mentioned above, Wegelin & Co., which was thought by some to be less vulnerable to US law enforcement pressures because it had no branches outside of Switzerland, pled guilty to conspiring with US taxpayers and others to hide from the IRS more than US$1.2 billion in secret Swiss bank accounts and the income generated in these accounts. As the US government’s investigations of various banks around the world continue, so does the data mining.
Just last week, a federal judge authorized the IRS to issue a John Doe summons to another Swiss bank that will require that bank to produce information regarding Wegelin’s United States correspondent account at that bank. According to the DOJ, records obtained by the government through that John Doe summons and other similar summonses will allow the government to determine the identity of certain US taxpayers who directly and indirectly hold or held interests in financial accounts outside of the US. As the US government continues to mine for additional data relating to US taxpayers (through such means as John Doe summonses, prior voluntary disclosures, cooperation with banks and foreign governments, disclosures required by the Foreign Account Tax Compliance Act and the Statement on Specified Foreign Financial Assets that was required to be filed for the first time with 2011 federal income tax returns), the chances of discovery by the DOJ and the IRS increase. In connection with the authorization of the John Doe summons, Keneally advised, “The world is shrinking, and time is running out for taxpayers to come into voluntary compliance before either the IRS or the Justice Department finds them.”
Although the DOJ and the IRS have indicated that their interest is in offshore tax evaders and those that assist them, persons unaware of their tax reporting and disclosure obligations have also paid substantial penalties in connection with their efforts to become compliant. Taxpayers may wish to consult with tax counsel in order to ensure continuing compliance with tax payment, filing and reporting obligations, and to determine whether participation in the 2012 Voluntary Disclosure Program is appropriate. Taxpayers with unreported income from sources outside of the US should also discuss the state and local tax and other ramifications of any disclosure to the IRS with their tax counsel.
For more information, please contact the authors.
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