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Swiss Banks Struggling to Get American Clients to Disclose to IRS

Prior to his death in 1980, Maurice Pinot opened a Swiss account with approximately $1 million, which would pay interest and dividends to his longtime companion, and after her death, to her daughter. That daughter, Micheline Fournie, an 81 year old French citizen with U.S. residency, is now resisting pressure from the bank to voluntarily disclose the account to the IRS.

As a result of the U.S. crackdown on offshore tax evasion that started around 2008, Swiss banks have eagerly been trying to convince American clients to voluntarily disclose their accounts to the IRS and sign waivers of Swiss bank secrecy laws. Nonetheless, there are still many American taxpayers who simply refuse to voluntarily declare their accounts to the IRS.

U.S. taxpayers who have a financial interest in foreign bank accounts with an aggregate balance exceeding $10,000 at any time during the year must file a Report of Foreign Bank and Financial Accounts (FBAR). Those who fail to file an FBAR could face harsh civil penalties and potential criminal prosecution. The IRS currently offers programs that allow taxpayers with undeclared accounts to come forward voluntarily, including the Offshore Voluntary Disclosure Program and the Streamlined Compliance Procedures.

Fournie's account was frozen last year, but she still refuses to declare it to U.S. authorities unless the bank provides information about its origins and management. The dispute involves whether Fournie must report all of the funds in the account, including the underlying capital that she has no rights to, or just the interest in dividends that she is entitled to. Among the documents Fournie seeks from the bank is a copy of Pinot's will. Due to privacy laws, the bank is unable to comply with her request.

Fournie's case is similar to many clients that we have represented. It seems from the circumstances that her failure to report the account to U.S. authorities was, at least until recently, non-willful. Many of our clients inherit foreign accounts from deceased relatives and are simply unaware of the reporting requirements. Such clients are generally excellent candidates for the Streamlined Procedures that were announced in June of last year. Under these procedures, those whose failure to report foreign accounts was non-willful must file amended tax returns for the three most recent tax years and pay a 5% penalty, based on the value of their undeclared foreign accounts over the last six years.

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