Looming FATCA Implementation is Latest Arsenal Against Offshore Bank Secrecy

The Cat is Almost (and Soon Will Be) Out of the Bag Regarding Undisclosed Offshore Bank Accounts

When a rogue banker at UBS in Switzerland agreed in 2008 to provide U.S. tax authorities with sensitive information regarding the Swiss bank’s U.S. account holders, Pandora’s box was opened as far as offshore bank secrecy is concerned. UBS eventually confessed to helping Americans conceal their offshore bank accounts, paid substantial fines, penalties and restitution, and tattled on even more U.S. account holders.

Since that time, U.S. tax authorities have embarked on an uber-aggressive campaign aimed at ferreting out undisclosed offshore bank accounts. As part of its crackdown on undeclared offshore financial accounts, the U.S. has applied much legal and political pressure on foreign banks and governmental authorities in an effort to get their assistance in gathering information regarding offshore financial accounts held by U.S. citizens or residents. The crown jewel in the U.S. arsenal against offshore tax evasion is the recently enacted federal legislation known as FATCA (Foreign Account Tax Compliance Act). Under FATCA, foreign banks will be required to disclose the identity and other information regarding its U.S. account holders or face crippling 30% withholding on all of its U.S. source income.

Faced with intense legal and political pressure from the U.S. and not wanting to lose unfettered access to lucrative U.S. markets, many countries have recently signed an intergovernmental agreement with the U.S. pursuant to which they have agreed to share with the U.S. sensitive tax information regarding bank accounts in their jurisdiction which are controlled by Americans, all as required under FATCA. These intergovernmental agreements are designed to implement FATCA and the offshore account information exchange contemplated thereunder. The countries that have agreed to share offshore bank account information with the U.S. under FATCA include France, Germany, Japan, Spain, Mexico and the U.K., as well as traditional tax havens like Switzerland, the Cayman Islands, and Costa Rica. Keep in mind that many of these agreements, including the agreements with France, Italy, Spain and Great Britain, are “reciprocal” agreements, meaning that the U.S. will share with its foreign counterparts similar information regarding foreigners holding bank accounts in the U.S.

The bad news is that with FATCA reporting looming, U.S. taxpayers (including both U.S. citizens and U.S. residents) holding undeclared offshore bank accounts will almost certainly be outed now. The good news is that the IRS currently has a quasi-amnesty program (the 2012 Offshore Voluntary Disclosure Program) (“OVDP”) in effect that will allow the U.S. taxpayer, if accepted into the program, to avoid criminal prosecution and qualify for reduced civil penalties. The problem is that if the IRS discovers your undisclosed offshore bank account before you are pre-cleared to enter the OVDP, you will not be eligible to enter the OVDP and take advantage of the immunity from criminal prosecution offered under this program. It is also important to note that this program could end at any time.

If you are a U.S. citizen or U.S. resident (including green card holders) and have or had an undisclosed offshore bank account, you should seriously consider applying for acceptance into the OVDP and taking advantage of the criminal immunity and other protections offered under this program. Give us a call and we will be happy to discuss with you the specific details and requirements of this program and any other options you may have.


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