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DOJ, IRS investigating Swiss banks, insurers for tax issues

American authorities at the Department of Justice and the Internal Revenue Service are continuing their ongoing investigation into Swiss banks to determine compliance with the regulations set forth by the Foreign Accounts Tax Compliance Act (FATCA). Their investigation has now branched out to include Swiss insurance companies.

Specifically, investigators are looking at insurers who sold so-called "wrapper" policies to very wealthy American investors in the early 2010s. These policies allow the insured to set aside stocks, investment portfolios, private equity holdings and other high-value bankable assets, increasing their economic benefits while avoiding taxation.

Tax benefits versus criminal tax avoidance

Regulators fear that these insurance wrappers are not just offering tax benefits to policyholders, however. Given the traditional stance of secrecy and discretion offered by international banks - particularly those in Switzerland - ensuring compliance with FATCA and other international taxation code provisions has been difficult for the IRS. That is why investigators at the DOJ and the IRS have widened the scope of tax reporting and payment compliance to include these insurance policies.

These policies haven't been actively sold in America since 2012, but may still be offered to expats living abroad. In addition, policies purchased prior to that time could still be active.

This means that there could be potentially hundreds of millions of dollars - or even billions - in assets sheltered in them.

A high price for non-compliance

Neither U.S. nor international tax regulators have said that these policies are inherently illegal or used nefariously. The concern exists, however, that they could be subject to improper tax avoidance, hence the heightened scrutiny. Banks and insurers found to have engaged in purposeful tax avoidance are punished harshly. Penalties include fines of up to seven percent of the total amount of American assets handled. Switzerland's largest bank, Credit Suisse, paid a record $2.5 billion in penalties back in 2014 relating to its role in possible tax sheltering.

If you have one of these wrapper policies, or you have any other concerns about tax compliance for international accounts, you need a defined tax plan. A skilled tax attorney can help you create a compliance strategy that ensures you are properly meeting federal regulations regarding income reporting and tax payments.

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