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Swiss banks nudge many toward voluntary disclosure, part 1

"Confession is good for the soul," or so the old saying goes. In the case of previously undisclosed offshore accounts, confession may also be a rational strategic choice - and help a taxpayer stay out of jail.

Of course, we are using the term "confession" loosely here. We are not referring to a formal confession to criminal tax charges. Rather, we are referring to disclosure by taxpayers to the IRS of foreign accounts that should have reported earlier. Since 2009, U.S. authorities have stepped up their enforcement efforts for these offshore accounts to unprecedented levels.

Through these enforcement efforts and complicated changes in international law, U.S. authorities have succeeded in breaching the once-solid wall of Swiss bank account secrecy. In this two-part post, we will discuss how, as a result of this breach, Swiss banks themselves are now encouraging U.S. taxpayers to consider entering one of the limited amnesty programs offered by the IRS.

These amnesty programs have gone hand-in-hand with the IRS’s offshore enforcement offensive. In 2009, the IRS began the Offshore Voluntary Disclosure Program (OVDP). Two years later, in 2011, the agency followed up with the Offshore Voluntary Disclosure Initiative (OVDI).

The acronyms and specific details have therefore varied over time. For purposes of this post, what is important to remember is that though the OVDI technically closed in September 2011, the IRS still has a voluntary disclosure program.

And indeed, the program is a popular one. In the last few years, some 38,000 taxpayers have participated in some form of voluntary disclosure program. Participating in such a program is an opportunity for a taxpayer to gain limited amnesty.

The amnesty is limited in that taxpayers are required to do more than disclose previously undeclared offshore accounts. Taxpayers must also pay back taxes and tax penalties on those accounts. They must continue to cooperate with investigations in order to avoid possible criminal tax evasion charges.

But it isn’t only U.S. taxpayers who are under stepped-up pressure from U.S. authorities. Foreign financial institutions are as well. In part two of this post, we will discuss the motivation of Swiss banks in encouraging their U.S. clients to consider the voluntary disclosure program.

Source: The Wall Street Journal, "More U.S. Taxpayers Admit to Secret Swiss Accounts," Laura Saunders, Nov. 1, 2013

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