On Monday, December 8, the Internal Revenue Service signed an agreement with the government of Liechtenstein whereby Liechtenstein will exchange information pursuant to IRS audits. At the same time, the current legal challenges against UBS, HSBC, and Credit Suisse for aiding tax fraud have placed U.S. owners of undisclosed "secret" foreign bank accounts at serious risk of IRS prosecution. This is especially true for U.S. owners of Swiss accounts. Beneficial owners of undisclosed foreign accounts must therefore give immediate consideration to minimizing the risk of IRS prosecution for tax fraud.
One way to limit the risk of prosecution is to convert a non-compliant offshore account into a tax compliant structure. Offshore strategies exist which can accomplish significant asset protection and tax minimization, and which are completely legal and tax-compliant. Although taxpayers cannot undo a non-compliant past, they can ensure full compliance going forward. Such steps may significantly reduce the chance of prosecution for previous violations.
A second strategy is the voluntary disclosure of your interest in a non-compliant offshore account before the IRS discovers it. Qualified legal counsel can approach the IRS on a hypothetical "no-name" basis, demonstrate proper current compliance, and negotiate on your behalf to prevent criminal prosecution and possibly reduce fines and penalties for past non-compliance.
The quickest and best way to bring a non-compliant account into compliance, as well as minimize the risk of IRS discovery of prior non-compliance, utilizes the agreement signed with Liechtenstein. The agreement requires Liechtenstein to share information with the IRS with respect to specific administrative investigations (audits) covering tax year 2009 onward, but not earlier. This means that if a non-compliant Swiss account, for example, is closed and the funds sent to a compliant Liechtenstein account before December 31, 2008, in the event of an investigation, Liechtenstein will only share with the IRS 2009 information on the compliant account. Obviously this option requires immediate implementation.
Beneficial owners of undisclosed foreign accounts must evaluate their options and take immediate steps to minimize the risk of IRS prosecution for tax fraud. Failing to remedy a non-compliant offshore account puts you at serious risk of harsh penalties, including IRS criminal prosecution, in the event of discovery. As recent events have proven, discovery is very likely.