The IRS had added five more banks to its list of banks at which accounts will cause the OVDP offshore penalty to rise to 50% applied to all noncompliant offshore assets (See OVDP FAQ 7.2).

FAQ 7.2 provides:

Beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation:  an event has already occurred that constitutes a public disclosure that either (a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person; (b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or (c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.  Examples of a public disclosure include, without limitation:  a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.   A list of foreign financial institutions or facilitators meeting this criteria is available.

Once the 50-percent miscellaneous offshore penalty applies to any of the taxpayer’s accounts or assets in accordance with the terms set forth in the paragraph above, the 50-percent miscellaneous offshore penalty will apply to all of the taxpayer’s assets subject to the penalty (see FAQ 35), including accounts held at another institution or established through another facilitator for which there have been no events constituting public disclosures of (a) or (b) above.

The list as of today has 26 listed banks.

Foreign Financial Institutions or Facilitators

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
12. Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
13. BSI SA (effective 3/30/15)
14. Vadian Bank AG (effective 5/8/15)
15. Finter Bank Zurich AG (effective 5/15/15)
16. Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
17. MediBank AG (effective 5/28/15)
18. LBBW (Schweiz) AG (effective 5/28/15)
19. Scobag Privatbank AG (effective 5/28/15)
20. Rothschild Bank AG (effective 6/3/15)
21. Banca Credinvest SA (effective 6/3/15)
22. Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
23. Berner Kantonalbank AG (effective 6/9/15)
24. Bank Linth LLB AG (effective 6/19/15)
25. Bank Sparhafen Zurich AG (effective 6/19/15)
26. Ersparniskasse Schaffhausen AG (effective 6/26/15)

The list will continue to grow as Swiss banks and other foreign financial institutions under Department of Justice scrutiny enter into non-prosecution agreements or otherwise are subject to a public disclosure described in FAQ 7.2 such as when a John Doe Summons is served on the bank for U.S. depositor information as was the case with CIBC in the Bahamas.

Since the 50% penalty can be avoided by submitting a names preclearance letter to IRS Criminal Investigation before a public disclosure has occurred with respect to the bank.  The extra cost of waiting until after a public disclosure has occurred is significant:  For example, assume a foreign bank account with a $2 million high value and offshore real estate bought with funds from the offshore account now worth $2.5 million.   50% of $4.5 million amounts to a OVDP offshore penalty of $2.250,000 while the regular 27.5% OVDP penalty would amount to $1,237,500.  The delay in submitting a preclearance letter would cost the taxpayer an additional $1,012,500.   That is not to mention the risk that during the delay the Department of Justice might obtain the taxpayer’s name thereby disqualifying him or her from the OVDP criminal amnesty.

© 2015 by Robert S. Steinberg, Esquire
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