Posted by: euser
March 08, 2010
Topic: Legal News

Update on Offshore Accounts

Recently, the ABA committee on Civil and Criminal Tax Penalties put on an excellent teleconference on the prosecution and defense of off-shore accounts. This is a brief summary of some of the high points:

•1) One commentator (an Assistant United States Attorney in the Southern District of Florida) stated that the Swiss government has submitted to it's Parliament a proposal approving the release of the 4500 names by UBS Bank, to process them as a treaty agreement between the two countries in order to bypass certain lawsuits filed by account holders in Switzerland. Further, a U.S. Citizen who opposes a foreign evidence request by the U.S. Government (in this case documents from the Swiss Banks or Government), has to file a copy of that request with the Attorney General of the United States of America. This is referred to as a 3506 request. Failure to do so may generate it's own penalties.

•2) The Voluntary Disclosure program (which ended last October) resulted in 14,700 disclosures. Of course the question from many clients and on the minds of many practitioners is " What now?" The best information available is that the IRS is still accepting Voluntary Disclosures that will result in no criminal prosecution, but there is no assurance as to what the penalties will be for failure to file foreign bank account reports ( FBAR's). The only thing that is certain is that the IRS says that it will not go below 20%, which was the amount provided for in the Voluntary Disclosure program. Therefore, a taxpayer runs some risk, if he makes a disclosure now that the penalty will be more than 20%, and, if the IRS determines that the Taxpayer was willful in not filing the FBAR, the penalty could go as high as 50% of the amount in the account for each year.

•3) A notable comment made by the same Assistant United States Attorney pre-October was that the materials, obtained in the disclosure are being reviewed and that they are looking for patterns. If they identify other banks in other countries that have engaged in similar conduct as UBS, they intend to go after those banks, and their customers, in the future. The strong message here was: Don't assume that this is only a UBS or Swiss problem. He also indicated that the Department of Justice has invited other banks to voluntarily come in and disclose information relating to specific clients believed to be hiding money in their banks. Therefore, it is possible that the disclosure could occur regardless of the taxpayer's intent. There are currently 150 criminal investigations involving offshore accounts, all of which are in the Grand Jury stage. Obviously, more are likely to be forthcoming once the release of the 4500 names from UBS, or the other information reflected above may be obtained. The Congress and the IRS has made this a high priority.

•4) Another question that is being asked is "I never knew about the FBAR requirements, how can the government come after me?" The interesting thing here is that ignorance of the law can be a defense with regard to criminal liability, although the government will argue that the taxpayer was engaged in "willful blindness". Since the standard to establish that a failure to file an FBAR was willful is very similar to that for criminal liability, then ignorance of the law may be a defense as to the 50% penalty. However, it is likely not a defense as to lesser penalties, since the general rule of civil law is that ignorance of the law is no defense.

•5) There are no surprises in the above information but it is enlightening to know that the government is intending to pursue more cases against other banks in other countries.

Update On Offshore Accounts

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