An article in the Wall Street Journal on July 19, 2014 by John Letzing (“Taxpayers Get Incentives to Report: Swiss Banks Aim to Entice Americans to Disclose Accounts to IRS by Helping Cover Costs, Penalties”), reveals what many professionals have known for a while.  Some Swiss Banks are pressuring and offering inducements for clients to enter the IRS Offshore Voluntary Disclosure Program and agree to waive Swiss Bank Secrecy laws that the banks can disclose their accounts.

Why are the Swiss banks so eager to have their American customers enter the OVDP that they would offer financial incentives?

Answer: Because, it serves the bank’s interests.  Over 100 smaller Swiss banks have entered the Swiss Bank Settlement Program offered by the Department of Justice and sanctioned by the Swiss government.  These so-called Category 2 banks not presently under investigation will pay a penalty under negotiated non-prosecution agreements (NPAs).  The banks must encourage clients to enter the OVDP and have until mid-September to offer proof to the DOJ they they’ve met that condition.  In addition, hidden funds voluntarily disclosed by such clients can reduce the penalty the bank must pay under the NPA.  Beyond that reason, banks participating in the program are barred by Swiss law from turning over to DOJ client identities.  Thus, the banks want clients to waive the bank secrecy law prohibition and permit turning over names.

What are some banks offering? 

Answer: The incentives vary from bank to bank and can be modest to substantial and are said to have included agreements to pay:

• A modest flat sum such as $5,000.
• A modest share of expenses such as in the case of Zuger Kantonalbank, the cost of the first visit to a tax specialist in connection with entering the OVDP.
• A share of legal and accounting fees which can be substantial, and,
• In some cases, a share of the Offshore Penalty imposed under the OVDP.

What does it all mean?

Swiss banks offering inducements are sending letters to clients that warning that if the client refuses to voluntarily disclose, the U.S. tax authorities may obtain their identity through other means such as by analyzing the general account data that will be provided to the DOJ under the Swiss Bank Settlement Program or by making treaty requests for assistance in identifying clients who have not come forward.

In this regard, the Swiss banks are correct.  It is no longer a matter of if a client’s identify will be uncovered but when.  The rocks under which to hide are becoming few and the search for those still hiding becoming more intense and focused.

RSS Comments:

• By all means seek financial assistance from the bank with these caveats:
  • The financial inducement could be taxable income itself reportable.
  • The DOJ is considering whether these arrangements are objectionable. Why would they be?  I’ll speculate on two possibilities:
    •  Does the payment of compensation taint whether a voluntary disclosure has been made?
    • Should a bank’s penalty under the Swiss Bank Settlement Program be reduced when it has paid compensation to obtain the disclosure?
  • .  Certainly, any inducements should be disclosed in the OVDP submission.
• Whether or not incentives are offered by your bank, the time for hiding is over.

RSS Suggestion:

If you are still out in the cold with an unreported Swiss or other foreign financial account, you should have acted sooner; but, the time for helpful action is growing perilously late.  So, a word to the wise: Contact an experience OVDP tax lawyer to discuss how you may come into compliance with the least risk of criminal sanctions and the lowest possible financial cost.   Every case is distinct.  There are no generalities that can be applied to how to go about this.  There are, however, alternatives to the OVDP that may be available to some taxpayers.

© 2014 by Robert S. Steinberg, Esquire All rights reserved