On June 9th, for the sixth time this year, the IRS updated the list of offshore banks who have entered into deferred prosecutions agreements with the IRS and US Department of Justice. Just added to the "Foreign Financial Institutions or Facilitators" list are two Swiss banks, bringing the grand total to 23. The two latest additions are Societe Generale Private Banking (Suisse) SA & Berner Kantonalbank AG.
What does being on the Foreign Financial Institutions or Facilitators list mean?
If you have any unreported bank accounts with one of the banks on the Foreign Financial Institution or Facilitators list, it means that it is incredibly likely that these offshore banks have handed over information to the Department of Justice as part of their deal with the US government. That is, in order for the banks to avoid criminal penalties and fines, they've agreed to "spill the beans" on Americans who hold accounts with them.
Is my life over if an offshore bank handed my information over to the IRS?
No! It absolutely is not. What it does mean is that you need to act quickly. The Department of Justice can not prosecute everyone. However, part of the deal is that since a disclosure at this point would not be particularly "voluntary," the IRS has increased the offshore penalty from the standard 27.5% OVDP penalty to 50% of the highest account value. This is pursuant to the Offshore Voluntary Disclosure Program OVDP FAQ 7.2.
The 50% penalty sounds unreasonable. What other options do I have?
You can actually opt-out of the standard OVDP penalty. We have seen many situations where the offshore bankers assumed that their American clients wanted to evade taxes, and thus remained quiet and never told their account holders about US tax filing requirements and FBAR account reporting. In reality, the American clients did not actually know that they had to pay taxes on their worldwide income. They didn't think that having a bank account overseas had anything to do with tax evasion and would readily pay taxes on these overseas accounts if they knew it was legally required.
Or, you may have some sort of justifiable reason. Maybe you want to challenge the FBAR penalty on other reasonable grounds while avoiding the likelihood of criminal prosecution. The point is that there are other options available. And these options — depending on your individual situation — have the ability to bring your penalty down to something reasonable that won't leave your life in shambles.
Please note that while you have other options, like most OVDP decisions, you definitely want a legal opinion (or two) before progressing. These situations can be very nuanced and the last thing you want to do is charge in without knowing what you're up against. If your case calls for it, you may be able to enter into either the Streamlined Domestic Offshore Procedures (SDOP) or Streamlined Foreign Offshore Procedures (SFOP).
Well, what if I wasn't so innocent?
There comes a time when not making a decision has created a decision. Unfortunately for many involved, the risk of avoiding detection if you have been banking with one of these banks is quite small.
Here are some points:
- Your banker will probably give the government any testimony they ask for.
- Having the bank accounts in a foreign corporation, foundation, trust, or partnership offers you no protection.
- An IRS criminal trial is expensive and stomach-churningly painful, meaning you will probably plea and that plea will likely include real jail time.
- It is doubtful that just one willful FBAR penalty will be assessed; much more likely is multiple penalties exceeding your entire net worth.
So, for many cases, it really may make sense to pay that 50% FAQ 7.2 penalty by getting into the OVDP and giving yourself the opportunity to move on with your life.
My head is spinning — this is all confusing. What should I do?
I would recommend watching our Offshore Voluntary Disclosure Program webinar. We developed this to be as straight-forward as possible, yet still give all of the necessary information. You can watch it anytime, no sign-up required, below. Or you may have questions about FBAR penalties and how they work. If so, we have a webinar on that as well. You can watch it by following this link.
Finally, if you ever need help, don't hesitate to ask. The worst thing you can do is try and shoulder the entire burden of a tax debt by yourself. There are so many rules and the stakes are so high that sometimes you won't be able to handle it yourself. And that's ok. As tax professionals, we spend our entire lives helping people out of tough situations. Find someone you can trust to help you through a tough time and I guarantee you'll feel better immediately.
