U.S. clients of 106 Swiss banks face dramatically steeper penalties under new rules announced by the agency if they don’t disclose their accounts to the Internal Revenue Service by August.
The penalties are among changes to the IRS’s offshore voluntary disclosure program, which has drawn 45,000 account holders who paid $6.5 billion since 2009. Starting Aug. 4, taxpayers making such disclosures will have to pay a penalty of 50 percent of an account’s value, not the current 27.5 percent.
The 106 Swiss banks are seeking to avoid U.S. Justice Department prosecution by disclosing how they helped Americans evade taxes. The U.S. can use that information to seek taxpayers’ identities under a U.S.-Swiss tax treaty. Clients who disclose their accounts after Aug. 4 will face a 50 percent penalty whether or not the U.S. has already learned their names.
“If you’re engaged in willful tax evasion, time is getting quite short for you to come in,” Mike Danilack, an IRS deputy commissioner, said in a telephone call with reporters. “Enforcement efforts in this area are continuing to thrive. We are very intent on stamping out noncompliance in this area.”
The IRS also could learn taxpayers’ identities from data provided by Credit Suisse Group AG, which pleaded guilty in May and paid a $2.6 billion penalty, or from any bank worldwide turning over information under the Foreign Account Tax Compliance Act, or FATCA, which takes effect July 1.
“The noose is tightening around people with undisclosed offshore accounts,” said Seth Entin, a tax attorney at Greenberg Traurig LLP. “What they’re saying is if you don’t start coming in now, the consequences are going to be worse and worse.”
Tax attorney Scott Michel said “it’s inevitable” that the 106 Swiss banks will sign non-prosecution agreements and hand over data, leading to U.S. treaty requests.
“If you’re a non-compliant taxpayer who’s been sitting on the sidelines and you had money at the 106 banks after August 2008, the risk calculus has now changed,” said Michel of Caplin & Drysdale. “Before today, your risk in that circumstance was pretty diffuse.”
Along with the new rules announced yesterday, the IRS made changes to encourage voluntary disclosures by taxpayers with unreported foreign accounts whose actions weren’t considered willful.