Public attention started to become focused on offshore bank accounts in June of 2008 when the IRS announced it had filed a "John Doe Summons" seeking an order from a federal court in Miami, Fla., permitting the Internal Revenue Service (IRS) to request information from Swiss banking giant UBS about U.S. taxpayers who may be using Swiss bank accounts to commit tax evasion. A copy of the IRS papers can be found here. The district court subsequently granted the order. According to a Reuter's report, as of November 2008 there were proceedings ongoing in Switzerland to determine whether UBS can comply with the summons under Swiss law. UBS no longer offers offshore Swiss bank accounts to U.S. clients, and is closing existing Swiss bank accounts of its U.S. clients. Check our Tax Problem Attorney Blog for the latest developments.

Problems started earlier in the year for UBS when on June 19, 2008 UBS banker Bradley Birkenfeld pled guilty to conspiring defraud the IRS by helping UBS clients avoid IRS reporting requirements. Birkenfeld claimed that UBS was managing approximately $20 billion in offshore accounts for U.S. taxpayers.

The problems with offshore bank accounts are not limited to UBS. In July 2008 the Homeland Security and Government Affairs Committee Permanent Subcommittee on Investigations, released a report accused LGT Bank of Liechtenstein with promoting tax evasion through the use of fake charitable trusts, foreign shell companies, captive trustees and straw man settlors, anonymous transfers, multiple transfers among companies, disguised business trips, and the use of foreign credit cards to draw on accounts; all to hide the existence of offshore bank and financial accounts.

Attention begin to focus on LGT earlier in the year when it was disclosed that the German Government had an informer 5 million Euros for a DVD containing financial details of about 1,000 rich Germans suspected of having evaded tax by making undisclosed investments totaling 4 billion Euros in Liechtenstein. At one point the IRS announced that it was investigating more than 100 American taxpayers in connection with Liechtenstein offshore financial accounts. This affair is especially embarrassing to the Lichtenstein royal family which owns LGT.

Holders of foreign financial accounts at other offshore banks are not necessarily safe either, as reports have surfaced of an expanded inquiry by the IRS into offshore banking services provided to customers of Credit Suisse and HSBC.

Individual taxpayers who file U.S tax returns, and  who have Swiss bank accounts, or any other offshore financial accounts must report income from these offshore financial accounts on Schedule B of their Form 1040 income tax returns. They must also declare these offshore bank accounts on their tax returns. Furthermore, taxpayers with signatory authority over, or an interest in offshore bank accounts are required to file Form TDF 90-22.1 no later than June 30th. Anyone with a foreign financial account including an offshore bank account or an offshore securities account who doesn't file Form TDF 90-22.1 can be hit with both criminal tax penalties, and civil tax penalties. The criminal tax penalties are a maximum of $250,000, or five years in prison, or both. 31 U.S.C. 5322(a).

Even if no criminal tax penalties are imposed the civil tax penalties are stunningly expensive. For willful violations which took place before October 23, 2004, a penalty up to the greater of the entire balance in the account (not to exceed $100,000) or $25,000 may be imposed. Pursuant to 31 USC 5321(a)(5) anyone who willfully violates the law after October 22, 2004, can incur a maximum penalty equal to the greater of $100,000, or 50 percent of the entire balance in the account. There is a six year statute of limitations on the assessment of the penalty. It is important to note, however, that these are the maximum tax penalties and a tax litigation attorney MAY be able to negotiate a small civil or criminal tax penalty.

Call us now at 800-380-TAX LITIGATOR or contact us online to make an appointment, and find out how our former IRS tax attorneys can help.