But the disclosure program entails risk, warns Wolfe. The feds can eject taxpayers from the multi-step process—and its protections—anywhere along the line, including after they’ve divulged incriminating information.

That happened in March to tax cheats who had used Israel’s Bank Leumi.  “Fairness” will be considered in meting out punishment to these individuals, an IRS official was quoted as saying in a Forbes report.  But Wolfe calls the IRS disclosure program “a ruse, a way to smoke people out.” Working with savvy counsel is essential.

Duggan reminds both practitioners and taxpayers that the IRS can force a financial advisor—someone not protected by attorney/client privilege—to testify that a client admitted to tax evasion. “It’s critical that conversations remain privileged, so taxpayers should speak only with lawyers,” Duggan says.

Non-lawyers can help by reminding clients of their compliance obligations. Wolfe says, “On Line 7 of Form 1040 Schedule B you have to declare your offshore accounts. You may have to file IRS Form 8938 to disclose ownership of foreign financial assets. And by June 30 of every year, you’ve got to file FBARs [Report of Foreign Bank and Financial Accounts] for every account over $10,000 that you either own or have signature authority over.”

Advisors can also warn clients about the feds’ next targets, Duggan says. Banks in Singapore, the British Virgin Islands, Cayman Islands and Cook Islands are the focus of a tax-information sharing collaborative announced in May involving the U.S., U.K. and Australia.

Separately, the U.S. and Switzerland reached an agreement late last month that will allow Swiss banks to disclose information about customer accounts to U.S. authorities, Intriago adds.

Finally, Intriago advises telling clients about FATCA, the Foreign Account Tax Compliance Act. Starting next year, all offshore banks—even those in traditional secrecy havens—will have to disclose to the IRS their U.S. customers’ identities, or 30 percent of what they receive from U.S. banks will be withheld.

“FATCA is going to produce a lot of revelations to the IRS, and other U.S. agencies when appropriate, about accounts that foreign banks hold for U.S. taxpayers,” Intriago says. “Tell private wealth clients, if they haven’t paid taxes on their offshore accounts, the IRS will find them out.”

And if that happens before they come clean, Wolfe says you can quote them Bob Dylan:  “A hard rain’s a-gonna fall.”

Even in the sunny Caribbean.

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