The formal IRS/Department of Justice (DOJ) Swiss Bank Program has concluded with 80 Swiss banks coming forward. The banks agreed to provide information about personnel, depositors and advisors who were participated in or assisted U.S. taxpayers in offshore tax evasion. In addition to disclosure and cooperation with investigations each of the banks paid substantial penalties. In exchange for the disclosures, cooperation and penalties, the banks received Non-prosecution agreements. But let there be no mistake, the offshore tax program is far from over.
There is substantial political pressure on the IRS and DOJ and exemplified by the recent statement of Senator John McCain.
“I am gratified that progress has been made in the broader effort to curb the use of off-shore accounts by tax cheats, whose actions only increase the tax burden on average Americans. Part of the agreement reached with the institutions requires cooperation with other criminal and civil investigations. I urge the DOJ to see these efforts through, the results of which should be the subject of further congressional oversight.”
The sentiment of Senator McCain was echoed by Acting Assistant Attorney General Caroline D. Ciarolo at a recent ABA Tax Section meeting;
“We are looking well beyond Switzerland, to jurisdictions that many of you have added to your passports – for example: Belize, the British Virgin Islands, the Cayman Islands, the Cook Islands, India, Israel, Liechtenstein, Luxembourg, the Marshall Islands and Panama, just to name a few. We encourage this outreach by practitioners and encourage financial institutions and individuals who have engaged in criminal conduct to contact the department to discuss their options.”
The implementation of the Information Exchange Agreements under the Foreign Account Tax Compliance Act (FATCA) is providing the IRS and DOJ with new and substantial information about non-compliant U.S. Taxpayers. the focus is not limited to traditional financial products. A recent case involving the use of Private Placement Life Insurance (PPLI)is further illustrative of the reach of the IRS.
In the particular case the IRS challenged the taxpayer’s use of PPLI on the grounds that he had “indirect control” of the investment decision of investment decisions. The Tax Court agreed with the IRS and treated all income earned in the policy as taxable to the U.S. taxpayer.
The DOJ has made it clear that it considers offshore PPLI as reportable under the Bank Secrecy Act (BSA) and accordingly requires an annual FBAR and possibly information returns under the Internal Revenue Code (IRC).
In summary, U.S. taxpayers should expect continued aggressive enforcement actions to be taken by the IRS and DOJ with more prosecutions and many more civil cases forthcoming. For those taxpayer sitting on the fence daring the IRS and DOJ to find them or paralyzed with fear, there is an alternative, and that is to engage counsel, determine the cost and evaluate the benefits of using one of the voluntary disclosure programs. There are three programs to consider. First, Delinquent filer, second Streamline Procedure and third the Offshore Voluntary Disclosure Program. Fact will determine which program is most appropriate. We are here to help.