Have a Swiss Bank Account? Thanks to FATCA it is Time for Full Disclosure.
Switzerland is well known for its banking secrecy laws that have led Swiss banks to be called a tax haven—especially for those trying to hide money from the IRS. Well, thanks to FATCA, hiding that money just got a little more difficult.
FATCA and Swiss Banks
Many Americans still haven’t heard about FATCA, the Foreign Account Tax Compliance Act, but this year that will certainly change. FATCA was enacted to uncover tax cheats, force them to disclose their assets and pay the IRS what they owe. This year, FATCA kicks into high gear when foreign banks are required to report on the accounts of their American clients. The banks who don’t comply will be severely penalized so most banks are getting on board (however reluctantly).
The US government had given some 300 Swiss banks a deadline of December 31, 2013 to seek non-prosecution agreements if they had ‘reason to believe’ they have violated US tax laws. In a nutshell, the IRS gave them an option to come forward, pay the penalties for having hidden these accounts and no one involved will be prosecuted. Of the 300, 106 have signed agreements and will begin providing data on their American customers. The banks agreed to pay the following fines for accounts not disclosed to the IRS:
- 20% of the value of accounts not disclosed in August 2008
- 30% of the value of accounts opened between August 2008 and February 2009
- 50% of the value of the accounts opened since February 2009
Interestingly enough, the banks penalties will be reduced for every American client who applies to the Offshore Voluntary Disclosure Program (OVDP) before the bank actually turns their name over to the IRS. If you have a Swiss bank account, you should be receiving a letter from your bank strongly urging you to enter into a voluntary disclosure agreement.
The IRS originally introduced the Offshore Voluntary Disclosure Initiative in 2009 and the current version of the program launched in 2012. Currently there is no end date for the program but the IRS warns it could discontinue the program at any time so taxpayers are encouraged to apply as soon as possible. Those who enter the program will be required to submit amended tax returns for the past eight years and pay any applicable taxes, interest and penalties. In addition to the tax returns, participants must file eight years of FBARs (Foreign Bank Account Reports). FBARs are required for US citizens who have bank account balances of $10,000 or more at any point in a calendar year. FBAR is filed separately from the US tax return. Previously it was filed on Form TD 90-22.1 but as of 2013, all FBAR filings are done electronically via FinCEN Form 114.
Penalties on past returns are generally 27.5% of the highest balance in the offshore accounts. While these penalties are indeed steep, participating in OVDP can help you avoid criminal prosecution. Taxpayers are strongly encouraged to apply for OVDP before the IRS contacts them.
Need more information on FATCA or OVDP?
For more detailed on FATCA and how it may affect you, read this blog post. If you are considering applying for OVDP, please contact us and we can advise you on the best course of action based on your personal tax situation.
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