American expats living abroad with undisclosed foreign financial accounts must be aware that the IRS has been using a wide range of sources to find noncompliant US taxpayers. Many American expatriates read about the FBAR and FATCA. Earlier we wrote an article about Foreign Account Bank Reporting and Foreign Account Tax Compliance Act. There is one development introduced by the IRS and Justice Department at the end of 2013. This new program is Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.
IRS Bank Disclosure Program for Swiss Banks
Why will the banks participate in the Bank Disclosure Program?
Some banks face criminal liability for maintaining the undisclosed accounts of American expats and other US taxpayers. If these banks participate in the Bank Disclosure Program, they will not be prosecuted if they meet several requirements.
What is the purpose of the Bank Disclosure Program for Swiss Banks?
On August 29, 2013, the Department of Justice and Swiss Federal Department of Finance announced “Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks.” This program targets some eligible banks that committed U.S. tax-related offenses. Under the program these banks can request a non-prosecution agreement as long as they provide the detailed information about the banks’ transactions and the accounts owned by US persons. Additionally, they have to cooperate and exchange the information under treaty requests. Moreover, they have to close the accounts of American expats who did not file their expatriate tax returns and did not comply with other US reporting obligations.
Can all Swiss banks participate in this Bank Disclosure Program?
Only the banks that committed US tax-related offenses are encouraged to participate in this program. However, other banks can also request a letter from the Department of Justice stating that the bank is not under the criminal investigation.
Which categories of banks are considered under this program?
The Department of Justice identified 4 categories of banks and penalty level if any.
Category 1
Category 1 includes 14 Swiss banks that are currently being investigated by the USA. These banks cannot participate in the settlement program.
Category 2
Category 2 includes the banks who violated US expat tax law, however, they are not under any investigation. These banks can apply for the Non-Prosecution Agreement. Also, they will be subject to US penalties within the range of 20-50% of the maximum aggregate value of undisclosed accounts pending the account open date.
Category 3
Category 3 includes Swiss banks that did not commit any violations of US tax law. They can request a non-target letter to validate their status.
Category 4
Category 4 includes Swiss banks that are considered “Deemed Compliant Financial Institution” or “Financial Institution with Local Client Base” under the Foreign Account Tax Compliance Act Agreement. These banks are not investigated by the IRS and they can request a non-target letter.
What is the deadline to apply for this program?
Swiss banks that decided to proceed with Category 2 had to inform the Department of Justice by December 31. While the bank under Category 3 and 4 must wait until July 1, 2014. Foreign Account Tax Compliance Act will become effective on July 1, 2014.
Which information will Category 2 banks have to provide under this tax program?
Category 2 banks must provide extensive financial account information to the Department of Justice. Specifically, these Swiss banks must review the accounts from August 1, 2008 including any transfer of funds. For example, the banks must indicate whether there were any cash deposits or withdrawals, whether any intermediary was involved in these transactions as well as the final destination of the overseas money transfer.
How does it affect American expats living abroad?
American expats with undisclosed offshore accounts must take proactive measures and become compliant. Although, Switzerland has always been famous for its banking secrecy laws, the situation is rapidly changing. US taxpayers with unreported foreign financial accounts must file US expatriate tax returns, FBAR and other relevant expat tax forms. To learn more or to request expat tax help, please contact us.