IRS seeks to pierce the veil of secrecy on foreign bank accounts

The days of anonymous Swiss bank accounts identified only by numbers and of stashes of cash in the Cayman Islands are dwindling. Not that there is anything inherently wrong with keeping the accounts, as long as the purpose isn't to evade U.S. income tax.

The IRS reports that since the year 2000, the number of individuals reporting their foreign income on Foreign Bank and Financial Accounts Forms (FBAR) has jumped by almost 85 percent. Even so, the tax authorities still believe that reporting compliance problems are rampant. That's why they are reminding taxpayers and should-be taxpayers of the need to fill out the forms, when they are due - even if the taxpayer does not receive an information return for the amount of earnings - and the penalties could result from noncompliance.

The FBAR form, also known as Form 90-22.1 is due by June 30th for the previous year. Anyone having a financial interest in or authority over a financial account or accounts with an aggregate value of at least $10,000 at any time during the year must report the amounts, or face steep civil and criminal penalties.

  • A nonwillful violation can bring a penalty of up to $10,000 per violation.
  • For a willful violation, the penalty can be the greater of $100,000 or 50 percent of the amount in the account at the time of the violation.
  • And for a violation of FBAR along with other laws at the same time, the penalty can be as high as $500,000 or 10 years in prison or both.

Taxpayers must also file Form 5471 if they own 10 percent or more of a foreign corporation or control a foreign corporation. Filing this form includes identifying the foreign corporation, describing the stock, and disclosing dividends received. Failure to file this form on a timely basis may result in a reduction of the foreign tax credit allowed, plus a fine of $10,000 to $60,000. If the failure to file is willful, the taxpayer may be charged with a felony.

Switzerland has long been a favored place to hold anonymous accounts because of the strict bank secrecy laws. That anonymity is enforced by threatening Swiss bank officials with hefty monetary fines as well as years in prison for identifying accountholders. But after years of frustration, on July 1, 2008 the IRS lifted the shroud of secrecy somewhat by demanding the identities of all U.S. taxpayers with authority over funds in the years from 2002-2007, held in UBS accounts. UBS has until April 30th to respond to the demands or go to trial on July 13th. The federal government estimates that approximately 52,000 U.S. customers are hiding a total of about $14.8 billion in Swiss accounts… and they intend to tax it.

The Internal Revenue Service is encouraging UBS account holders to come forward voluntarily by April 30th, file amended returns reporting the income that has been hidden overseas, and pay the amounts owed, including a negotiated penalty. The tradeoff? Those who comply may be able to avoid time in prison for tax evasion.

Charles Rettig, a California attorney whose firm (Hochman, Salkin, Rettig, Toscher & Perez) represents numerous clients with disclosure issues, was quoted in USA Today as giving the public this advice: "Now is the time for all taxpayers, and those who ought to be taxpayers... to come forward in order to hopefully preserve their future freedom. Those who ignore this window of opportunity may well find themselves in prison for tax evasion."

Related article:
UBS is pressured to turn over Swiss tax shelter client names

You may like these other stories...

The law makes it difficult for itemizers to deduct medical expenses. To reap any write-off, you must pay bills that aren't covered by insurance, reimbursed by employers or otherwise satisfied by, for example, a company-...
Drug patents held overseas can pare makers’ tax billsAs the Obama administration tries to stop companies from avoiding taxes by moving their headquarters overseas, the makers of some of the world’s most lucrative...
Starting in October, the IRS will send warning letters to tax return preparers who appear not to be complying with Earned Income Tax Credit (EITC) due diligence requirements.Section 6695(g) of the Internal Revenue Code...

Already a member? log in here.

Upcoming CPE Webinars

Oct 9In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards.
Oct 15This webinar presents the requirements of AU-C 600, Audits of Group Financial Statements (Including the Work of Component Auditors).
Oct 21Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience’s communication style.
Oct 23Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.