Swiss banks seeking non-prosecution agreements ran out of time to apply for the US Department of Justice's (DOJ) amnesty program on December 31, 2013. Before the amnesty program closed, the DOJ announced that 106 banks sent letters of intent to participate. Banks that made it into the program will be required to provide the DOJ with information pertaining to US account holders and advisors affiliated with US-related accounts and will be required to pay penalties tied to the balance of the US-related accounts no later than April 30, 2014 (unless a 60-day extension is granted).
US taxpayers with unreported accounts or interests in certain foreign entities should take notice of the amnesty program's success and seriously consider participating in the Internal Revenue Service's (IRS) offshore voluntary disclosure program (OVDP) for the following reasons:
· Compliance window remains open: It isn't too late for US taxpayers who have failed to disclose foreign bank accounts, or have failed to report certain interests in foreign corporations, partnerships or trusts, to enroll in the OVDP. Kathryn Keneally, Assistant Attorney General of the DOJ Tax Division put it this way, "I would think that anybody that has an undisclosed account anywhere in the world should come forward... We'll be looking for you."
· Possibility of reduced penalties: The DOJ may consider reducing penalties on participant banks if the bank provided its US account holders with notice of the OVDP and the US account holder discloses the account. This has caused banks to encourage US account holders into compliance, some freezing accounts of US persons unless he or she is able to confirm that they have or will enter the OVDP.
· 'Grace period' may end: US depositors that wait until participating Swiss banks turn over required information to the DOJ, will have run out of time. Should the government obtain specific evidence of non-compliance, that taxpayer will no longer be able to participate in the OVDP.
· Possible blacklisting: The IRS has reserved the right to target specific banks, resulting in its accountholders no longer being eligible to participate in the OVDP.
· Possible penalties and prosecution: Should the government identify a US taxpayer with a foreign account, that person becomes ineligible for OVDP and will face IRS scrutiny, liabilities, ranging from civil penalties to criminal prosecution.
· Quicker IRS timelines: The IRS is working overtime to process applications more quickly and to improve the "opt out" process for taxpayers who believe they should pay lower penalties than those required by the OVDP.
According to the 2013 National Taxpayer Advocate's Report, the most disproportionately high penalties as a percentage of unpaid tax were imposed on unrepresented accountholders. Experienced counsel is critical to protecting yourself from excessive taxes and penalties.
Source: "6 Reasons US Taxpayers Should Report Assets Held in Swiss Banks Soon," Latham & Watkins, February 3rd, 2014