An overview of the DOJ’s pattern of aggressive action.
The Department of Justice (DOJ) Tax Division enforcement
efforts started with Switzerland in 2009 and have carried over into other countries such as India, Israel, Liechtenstein, Luxembourg and the Caribbean. These efforts have produced over 50,000 disclosures resulting in over $7 billion in tax (PDF: DOJ May 2015 Hearing Report), interest and penalties to the United States Government. Finally, the Tax Division has 23 fugitive facilitators (facilitating banks) under indictment, twelve guilty pleas and two convictions at trial.
With this backdrop, the Department of Justice has maintained a historical pattern of aggressive action around the summer months starting with March and going through August. Here is a quick timeline of historical events during these months:
- March 2009 – IRS announces 2009 Offshore Voluntary Disclosure Program
- August 2011 – IRS announces 2011 Offshore Voluntary Disclosure Initiative
- June 2012 – IRS announces stricter requirements for 2012 Offshore Voluntary Disclosure Program
- August 2013 – DOJ announces Program for Swiss Banks to enter into Non-Prosecution Agreements (NPAs).
- May 2014 – Credit Suisse AG plead guilty to conspiracy and false income tax filings. Agrees to pay 2.6 billion.
- June 2014 – IRS announces 2014 Offshore Voluntary Disclosure Program and Streamline Filing Compliance Procedures
- August 2014 – Any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent uniform 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.
- March 30th, 2014 – BSI SA is the first Swiss Bank to reach a resolution with the DOJ and sign an NPA. Agrees to $211 million penalty.
- May 8th, 2015 – Vadian Bank is the second Swiss Bank to reach a resolution with the DOJ and sign an NPA. Agrees to pay $4.253 million penalty.
- May 15th, 2014– Finter Bank Zurich AG is the third Swiss Bank to reach a resolution with the DOJ and sign an NPA. Agrees to pay $5.414 million penalty
Clearly, the Department of Justice is ramping up its efforts regarding its Program for Swiss Banks with the cadence of banks signing NPAs expected to increase rapidly over the summer. A signed NPA will add to the list of foreign financial institutions or facilitators that invoke the dreaded 50% uniform miscellaneous penalty in OVDP. This means that the penalty for any U.S. account holder at such a bank jumps from 27.5% to 50% effective immediately after the agreement with the DOJ is signed. The DOJ actions also prime the IRS to make further changes to OVDP or Streamline filing, which are rarely ever in favor of the taxpayer.
History has a way of repeating itself. The DOJ and IRS are creatures of habit in this regard. For individuals who hold undisclosed foreign financial assets in Switzerland or other European countries, it is absolutely critical to seek the assistance of a Federally Authorized Tax Practitioner. By the time you get to July or August of 2015, such U.S. expat tax filers may well find themselves in a much worse position than they are in today.
About Five Stone Tax Advisers
Five Stone Tax Advisers has years of experience negotiating directly with the IRS to get the best possible outcome for you. Our International Tax Advisory and Compliance unit has a team of tax attorneys, certified public accountants and enrolled agents that form a single sourced point of contact that will provide services for all the legal, compliance and financial reconstruction aspects of offshore account cases.
