Swiss Bank Accounts are Still at Risk of IRS Enforcement

Swiss Bank Accounts are Still at Risk of IRS Enforcement  

In the mid to late 2000s, the Internal Revenue Service and the Department of Justice began seriously cracking down on Swiss bank accounts. Several Foreign Financial Institutions (FFIs) located in Switzerland and nearby countries entered into Deferred Prosecution Agreements with the US government — in exchange for voluntarily providing information about US persons who have foreign accounts. At the same time, the US government has developed the Offshore Voluntary Disclosure Program (OVDP)  as an offshoot of the Traditional Voluntary Disclosure Program but used primarily for taxpayers who had undisclosed foreign accounts. While the offshore voluntary disclosure program closed back in 2018 (now the traditional voluntary disclosure program is used for both domestic and offshore reporting) and Swiss Bank Accounts are no longer newsworthy — a common question is whether Swiss Bank Account are still at risk for enforcement by the US government?

5 Facts about Swiss Bank Accounts

In order to better understand just how Swiss bank accounts are still at risk for IRS enforcement, here are five (5) key factors to consider:

Numbered Swiss Bank Accounts Accounts May Not Really Protect You

In today’s day and age, the Swiss Numbered Account sounds better in the brochure. Back in the day, a US account holder at a Swiss foreign financial institution such as UBS could pay an additional monthly or annual fee in order to have the institution withhold information about the account — so that the taxpayer would be none the wiser about the account. These days, it may lead to a presumption of willful blindness.

Some Institutions Report you without Telling you.

Some foreign financial institutions in Switzerland will still report you to the US government as part of FATCA — even if they sell you on the fact that they will not do so. Oftentimes, what happens is that the institution may not have initially wanted to report the US person, but then got pressured into and did not update the account holder about the change in reporting status.

Bank Phone Calls About Swiss Bank Accounts are Recorded

It is not uncommon that when taxpayers contact foreign financial institutions abroad their account — the institutions record the call — which can be very dangerous to the unsuspecting Taxpayer. Thus, later down the line when the Taxpayer is under examination or audit by the IRS and they take the position that they never reached out to the foreign financial institution so they have no idea about the account, the IRS may already have information showing that the Taxpayer has already spoken with the institution on one or more several occasions.

Taxpayers are at Risk for a Reverse Eggshell Audit

One of the riskiest types of sensitive tax audits is the reverse eggshell audit. In this type of audit situation, the Internal Revenue Service already has information regarding the taxpayer’s noncompliance — and then audits the taxpayer to give them the opportunity to see how they react in audit when asked direct questions — but without letting the Taxpayer know that they have information about the non-compliance already –– to see how the taxpayer reacts.

Voluntarily Offshore Compliance for Swiss Bank Accounts 

Even though the US government technically closed the Offshore Voluntary Disclosure Program (OVDP) in 2018, it was really just an offshoot of the traditional voluntary disclosure program — which is still available to Taxpayers. In other words, Taxpayers can still voluntarily disclose their previously unreported foreign funds to the US government voluntarily, but instead of submitting to OVDP, they would submit to traditional VDP.

International Tax Lawyers Represent Clients Worldwide

Our International Tax Lawyer team specializes exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm for assistance.