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What Should You Do When Your Swiss Bank Sent You A Letter That Your Foreign Account Is To Be Disclosed To the IRS?

Since the last quarter of 2013, an increasing number of U.S. taxpayers with accounts in Swiss banks have received letters from Swiss Banks regarding participation in the Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). The Program was established by the Department Of Justice (“DOJ”) and along with the provisions of the Foreign Account Tax Compliance Act (“FATCA”) has been ratified by the Swiss Parliament thus conferring a legal obligation on all 106 Swiss Banks to comply. If you have a Swiss bank account and received one of these letters, pay close attention to this blog.

Letters from Swiss Banks: What They Usually Say

In these letters from Swiss Banks, the taxpayers are typically advised (sometimes with the somewhat offensive phrase “as you almost certainly know”) of the fact that their Bank will participate in the Program and disclose the taxpayer’s accounts in Switzerland. Then, the letters typically discuss three issues.

First, the letters from Swiss Banks ask the taxpayer to confirm whether he has already properly disclosed their Swiss bank accounts to the IRS. Some banks, like Banque Cantonale Vaudoise (“BCV”) even go as far as asking the taxpayers to confirm that other international tax compliance forms, such as Forms 5471, 3520 and, surprisingly, PFIC From 8621, have also been filed with the IRS. Other banks just ask for some sort of documentation that everything has been properly declared to the IRS.

Second, the letters from Swiss Banks ask the taxpayers are asked to verify if his Swiss bank accounts were disclosed as part of the official IRS Offshore Voluntary Disclosure Program (“OVDP”).

Third, the letters from Swiss Banks inform the taxpayers with undisclosed Swiss Bank accounts about the existence of the OVDP and encouraging you to enter into the OVDP, obtaining more information about the OVDP from the Bank, and, finally, offering to provide the necessary bank statements for the taxpayer to enter the OVDP. Some banks (for example, Nue Privat Bank) will even later offer to supply the tax information (though, these reports should be approached with a great deal of skepticism because these statements could contain a number of mistakes, such as failure to recognize the application of PFIC rules). Most letters from Swiss Banks also provide space for the taxpayers to express their consent to the disclosure of their undisclosed Swiss bank and financial accounts to the IRS.

Consequences for U.S. Taxpayers Who Received Letters from Swiss Banks

It is difficult to overstate the great impact that these letters from Swiss Banks may have on the taxpayer’s position. I want to concentrate on two most important effects of the letters from Swiss Banks. First and foremost, they provide notice to the taxpayer about the requirement to disclose their Swiss bank and financial accounts (and, in case of BCV and some other banks, other foreign assets such as business ownership) to the United States. Even if a taxpayer simply did not know about the FBAR requirement in the past, his behavior as a result of receiving these letters from Swiss Banks will now be subject to scrutiny – failure to act on these letters for a long time and willful disregard of them may change the taxpayer’s position from non-willful to willful, subjecting him to draconian FBAR willful penalties, including opening the possibility of criminal penalties to be applied.

Second, upon fulfilling the Notice requirement with these letters, the Swiss banks are free to disclose certain information to the IRS under the US-Swiss FATCA treaty. Once the IRS receives such information from the Swiss Banks, the exposed U.S. taxpayers most likely will not be able to participate in the OVDP.

Hence, once the taxpayers receive these letters, time becomes a crucial factor, because, if the decision to enter the OVDP is made by these taxpayers, it should be implemented as soon as possible.

What Should You Do Upon Receipt of Letters from Swiss Banks?

Your initial response to the letters from Swiss Banks may determine the entire course of your case.

1. Consult an OVDI/FBAR Tax Attorney

The first and most crucial step is not to panic and contact an OVDI/FBAR tax attorney who specializes in the voluntary disclosure of the foreign bank and financial accounts as well as other assets.

I want to emphasize that you need to contact an experienced OVDI/FBAR tax attorney, not an accountant. Offshore voluntary disclosure is a legal issue and its venue should be determined by an attorney, not an accountant. I have seen too many cases where accountants horribly mishandled their clients’ cases (on both strategic and tactical issues) because the accountants overstep the limitations of their profession and enter the world of legal advice.

The geographic location of your OVDI/FBAR tax attorney should not matter; a much more important factor should be the attorney’s experience in the case and you personal feeling of trust. If the attorney immediately advises you to enter the OVDP program without even considering the facts of your case, consider it a red flag and seek second opinion.

2. Try to Obtain As Much Information As Possible While Preparing for the Initial Consultation

During the initial consultation, the attorney will have no choice but to rely on you for the initial information required to assess the state of your case. So, try to get as much information as possible regarding your foreign bank accounts while preparing for the initial consultation. You should not have to wait for the foreign bank account statements or bring your originally filed U.S. tax returns in order to have a productive initial consultation.

3. Retain an OVDI/FBAR Tax Attorney to Handle Your Case According to the Proposed Strategy

After the initial consultation, you should have a pretty good idea of what your options are. Think about these options and the attorney’s recommendations, but not take too much time to do so (remember, time is of the essence in these cases). Make your decision and retain an OVDI/FBAR tax attorney that you like for your case.

If you have never reported your foreign investments on your U.S. Tax Returns, you should seriously consider participating in the IRS’s 2012 Offshore Voluntary Disclosure Initiative (OVDI). Once the IRS contacts you, you cannot get into this program and would be subject to the maximum penalties (civil and criminal) under the tax law. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.

Protect yourself from excessive fines and possible jail time. The tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Los Angeles, San Diego, San Francisco and elsewhere in California have helped numerous U.S. taxpayers with the voluntary disclosure of their foreign bank and financial accounts as well as other foreign assets. Let us qualify you for OVDI.

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