This FAQ Area is for informational purposes only. The FAQs are based on questions I have most frequently encountered from US-GCC Country dual nationals. The information, however, is applicable generally to US citizens holding any unreported foreign (non-US) assets. Please contact Virginia La Torre Jeker, J.D. for further assistance. If you need help from an Arabic speaking US tax professional we will try to assist and meet this need.
I suggest that each individual facing what are undoubtedly confusing and frightening US tax issues not discuss their situation with others who are not qualified US tax professionals (a US attorney is likely best so as to preserve the attorney-client privilege). The best advice is to obtain correct information, and then take at least several days to reflect on matters and absorb the information. With time and proper preparation, the issues can be sorted out and successfully handled.
I have received a letter from my non-US bank asking me to send them documents proving I have been US tax compliant. I have not been filing US tax returns. What should I do?
While the receipt of such a letter will understandably generate anxiety, there is always a solution. You simply need to be armed with as much information as possible in order to come to the best solution given your particular set of facts.
Ignoring it won’t make it go away and can only exacerbate the problem. If the bank does not hear a response from you, they may be forced to treat the account as an “unreported” US account. This has its own set of consequences, as discussed more fully in other FAQs below. This FAQ Area will help you learn some basics and will guide you to where you can learn more and from whom you can obtain assistance.
If I do not have the documents the bank is asking me to send them, what should I do?
It may be advisable that the matter is first discussed with an experienced US tax attorney. Discussion with legal counsel would be protected by the “attorney-client privilege”. The attorney-client privilege is a legal concept that protects certain communications between a client and his attorney keeping those communications confidential. The privilege allows the attorney to refuse to testify as to communications from the client or to turn over notes and work-papers pertaining to the client. The privilege is personal to the client, himself and, not to the attorney, and therefore only the client may waive the privilege.
The attorney–client privilege encourages clients to make “full and frank” disclosures to their lawyer, who is then better able to provide the most appropriate advice.
The attorney client privilege is particularly important if the taxpayer ultimately decides not to disclose an offshore account or asset to the IRS. In contrast, a consultation with a non-attorney (for example, with the taxpayer’s accountant) is not protected by the privilege. If the IRS discovers the foreign financial accounts or assets, the taxpayer’s accountant or other non-attorney could become a witness for the IRS against the taxpayer or be required to turn over records and documents. This would not be the case if an attorney had been consulted.
Simply closing out the account won’t help and in fact, can serve as evidence against you – perhaps indicating you had some kind of criminal “intent”, for example, to evade tax.
We can assist you in understanding the various options to address unreported foreign financial accounts. More guidance about these options follows in the FAQs below. We can help guide you to choose the option that may be most suitable for your particular case.
What does it mean for me if I have an account at a Swiss bank and my Swiss bank participates in the US Government Non-Prosecution Program?
Most people living in Switzerland know that many Swiss banks have already signed on to the Swiss-DOJ non-prosecution program (Program) announced at the end of August 2013. The Program was designed to encourage all Swiss banks to come forward and admit the role they played in assisting US persons to evade tax. The number of banks signing on to the Program indicates clearly that the US has been very successful in getting Swiss banks to fully cooperate with its demands. The Swiss government acted as an ally and strongly encouraged its financial institutions to sign up.
In order to participate, the Swiss banks are required to carry out arduous internal investigations to find “US related accounts”. They must appoint an independent examiner to review the due diligence they have undertaken. They must make a complete disclosure about the bank’s cross-border activities; provide detailed information on all US related accounts that existed on August 1 2008; and then, the bank itself must pay a penalty of 20%, 30% or 50% of the maximum value of all “undisclosed” US accounts that were held by the bank. Please note, this penalty is paid by the bank; it is not paid by the account holder.
The applicable penalty percentage depends on the date the accounts were opened with the bank. The penalty percentage increases after the date on which news became public that the US government was investigating Swiss banks for offshore tax evasion. Due to a bank’s entry into the Program, the bank will try to limit its penalties by having proof that the US account was not “undisclosed”. A bank’s entry into the Program is a reason many of the letters mentioned in other FAQs, are being received by US account holders. The holders are understandably afraid the DOJ and IRS will obtain their names and details because their bank joined the Program.
Swiss Banks will NOT automatically release names of account holders under the Non-Prosecution Program. However, this does NOT mean that no information will be released to the DOJ and IRS, as discussed more fully in other FAQs.
Will my Swiss bank automatically release my name to the DOJ and IRS under the Non-Prosecution Program if I am subject to US tax laws?
Much confusion apparently surrounds the Non-Prosecution Program. I have seen blog posts and tax articles stating that the terms of entry into the Program require the bank to reveal the names of US taxpayers who had or have accounts at the bank. This is simply not true. A participating Swiss bank must carry out internal investigations to find any “US related accounts”. What does this mean, and once the bank finds such an account, what must be done about it?
Generally, a US-related account means an account which exceeded USD 50,000 in value at any time since August 1 2008 as measured by the account balance on the last day of each month, and as to which “indicia exist” (unsurprisingly, this is not defined) that a US person or entity “has” or “had” a financial or beneficial interest in, ownership of, or signature authority (whether direct or indirect) or other authority (including authority to withdraw funds; to make investment decisions; to receive account statements, trade confirmations, or other account information; or to receive advice or solicitations) over the account.
Once a US related account is found, there is a presumption that all funds in the “US related” account are undeclared. This means that the value of the account must be included in the bank’s penalty base, UNLESS the bank can prove otherwise. Generally, in order to be eligible to exclude the value of the account from the penalty base, the bank must be able to demonstrate to the Tax Division of DOJ one of various possibilities – including that the account was not “undeclared”.
What does this mean? There is no clear answer to my knowledge, but what we are seeing is that if a taxpayer has signed a Form W-9 for the bank certifying that he is a US person this is helpful but usually standing alone, is not sufficient; if the taxpayer shows that the account was reported on his filed tax returns and reported on FBARs – this may generally be sufficient. Other possible methods exist for the bank to exclude the value of an account from the penalty base: showing that the bank disclosed the account to the IRS, or that the account was disclosed in an IRS Offshore Voluntary Disclosure Program.
I understand from some clients that some Swiss banks are now pressuring their current and former US account holders to disclose their accounts to the IRS. In some cases, the banks are supposedly freezing accounts or warning clients that information about the account will be turned over to the IRS, unless the client can prove he has declared the account to the IRS or he can demonstrate that he is attempting to join the IRS Offshore Voluntary Disclosure Program or Streamlined Procedure.
Some professionals are of the view that these banks are using these tactics in order to reduce their penalties in the Non-Prosecution Program by scaring non-compliant taxpayers into the OVDP. If you are facing such pressures from your bank, it would be a good idea to seek appropriate counsel and determine whether the bank is acting within the bounds of Swiss law and whether the OVDP or Streamlined Proceudre is the right choice for your particular factual situation.
What type of information can be released by my Swiss bank to the DOJ and IRS under the Non-Prosecution Program?
Participating Swiss banks must cooperate with Treaty requests for account information; provide details about any other banks that transferred funds into undisclosed accounts or that accepted funds when such accounts were closed out. Furthermore, participating banks must agree to shut down the accounts of any “recalcitrant” US account holders. Generally, these are account holders who do not comply with US reporting obligations disclosing their US status to the bank, or those who refuse to sign a waiver of rights under Swiss banking secrecy laws.
Names of account holders are not turned over under the Program unless, pursuant to the US-Switzerland Income Tax Treaty request procedure it is determined by a Swiss court that the provisions of Article 26 of the Treaty are satisfied. Article 26 of the US–Switzerland tax treaty allows the two countries to exchange information “as is necessary … for the prevention of tax fraud or the like.” The protocol to the treaty defines tax fraud as “fraudulent conduct that causes or is intended to cause an illegal and substantial reduction in the amount of tax paid” to one of the countries. Any type of fraudulent conduct requires a showing of “intent”, and “intent” is not always so easy to prove.
We can assist you in understanding all of these issues as well as with your queries about your financial accounts at Swiss or other non-US institutions. Please contact Virginia for more information.
Full details can be found in the Swiss-DOJ signed Agreement.
To access other posts in this series, see below:
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