We stand at a fascinating point in time with respect to the United States’ continued efforts to find those U.S. taxpayers who have undeclared assets offshore. During my tenure at the IRS, I spent a great deal of time on these efforts. Having led negotiations between the IRS and the Swiss Government in the UBS matter, I then worked with colleagues to develop the current IRS amnesty program relating to offshore bank accounts. That program has been wildly successful from the Government’s point of view. More than 40,000 people have come into the U.S. tax system and paid over $6 billion in back taxes, interest and penalties. In March of 2013, the General Accountability Office indicated that the median account balance per account holder was over $500,000.
So with that success, why is this a key time in the government’s efforts? It is generally believed that there remain many people who have not yet come clean. It seems that there are a number of individuals falling into several categories, including: dual citizens, non-resident aliens, resident aliens, the willfully blind, the ignorant inheritor, the “ostrich-like”, the recalcitrant and those who are beyond recalcitrant. And the number of these individuals is considerable. For example, it was claimed in a recent Senate hearing that there are or were 22,000 U.S. accountholders in Switzerland’s Credit Suisse alone. Of these, it was reported that the IRS has less than 300 names.
But all that will drastically change. There is no doubt that the world is a different and much smaller place than it was when the Government resolved the UBS matter in 2008. I believe more names of account holders are on their way from overseas to the IRS and Department of Justice. These names will pour in through numerous efforts now underway. Together, these efforts may truly break bank secrecy. Let me touch on just a couple of these efforts. First, there is the Foreign Account Tax Compliance Act (FATCA). FATCA will require the disclosure of an incredible wealth of information on foreign accounts owned by U.S. taxpayers. That data will start flowing next year. Even without FATCA, there is increasing cooperation between taxing authorities across the globe and the OECD has championed proposals for sharing financial account data across borders. There is also last summer’s deal with Switzerland where Swiss banks may provide information to the U.S. government. More than 100 banks have volunteered. In addition, in my time at the IRS I began to realize that individuals are but a thumb drive away from disclosure of their identities by way of a whistleblower. And of course, the IRS and DOJ continue their work, utilizing grand juries, John Doe summons and other tools. This work has increasingly focused on banking centers outside of Switzerland.
Together these efforts create a compelling case for those who have not yet come into the IRS voluntary programs to rethink their position. If a U.S. taxpayer’s name comes to the government in advance of a voluntary disclosure, all bets are off as to treatment. The penalties are menacing and the risk of criminal liability very real.
There are several voluntary alternatives, strategies and tiers of penalties presented by the IRS. With the coming storm of data, CPAs and tax preparers should be vigilant in their discussions with clients and should seek assistance if a client indicates unreported offshore assets.