Tax Law Center Blog

The U.S. Department of Justice last Thursday issued a release stating that it extended for one month the deadline for so-called category two Swiss banks suspected of helping wealthy Americans evade taxes to turn over information by one month.

We have previously posted on the U.S. Justice Department’s program offered to Swiss banks and targeted to identifying U.S. taxpayers that have not disclosed foreign accounts to the IRS.  It has now been stated that that one-third of all Swiss banks offered amnesty actually applied to the program. 

More than 100 banks that have a reason to believe they may have committed tax offences, defined as category two banks, have signed up to the programme. They are eligible for a non-prosecution agreement if they come clean and face fines.

The banks now have until July 31 to turn over the necessary information. The Justice Department said it had extended the original June 30 deadline because some banks were having trouble verifying whether an account was undeclared or disclosed in a timely manner to the U.S. Internal Revenue Service.

The Swiss government-brokered programme requires the category two banks to hand over some previously hidden information and face penalties equivalent to up to 50 percent of the assets they managed on behalf of wealthy Americans.

Last month Credit Suisse, which was one of 14 category one banks, became the largest bank in decades to plead guilty to a U.S. criminal charge and will pay more than $2.5 billion in penalties for helping Americans evade taxes.

This all should serve as an urgent reminder for US taxpayers that have unreported foreign assets to participate in the IRS Off-shore Voluntary Disclosure Program (OVDP) or seek to correct tax noncompliance through other avenues. The OVDPoffers an incentive for delinquent tax payers to disclose their offshore accounts.

Taxpayers can become compliant, eliminate the risk of criminal prosecution, and greatly reduces the civil penalty exposure by disclosing and paying taxes due plus interest. Applying to the OVDP involves submitting eight amended tax returns with taxes, penalties and interest, eight FBARs, and a 27.5% miscellaneous offshorepenalty.

Once Swiss banks turn in the required information, which will occur in the next few months, it will be likely too late for individuals to take advantage of the OVDP and voluntarily admit their noncompliance. With 106 Swiss banks participating in theVoluntary Disclosure Program for banks the timeline is getting even shorter. The IRS has the power at anytime to blacklist and designate specific banks whose account holders will no longer be eligible to participate in the OVDP.

The IRS and DOJ will continue to gather and use the information obtained from banks to identify, audit, and prosecute noncompliant individuals. If the IRS identifies you noncompliance through the amnesty program you face near certain IRS scrutiny, significant liabilities, severe and confiscatory array of civil penalties, and the threat of criminal prosecution.