Amazingly, the vast majority of US taxpayers who have failed to properly report their foreign assets and income over the last decade have yet to come clean. Recent developments in the global onslaught against tax evaders is a clear warning to file now, or be prepared for extreme financial penalties and criminal prosecution.
Two recent events demonstrate the fortitude of the US government in this ongoing fight:
1) Justice Department/Switzerland Agreement – At the end of August, the US and Swiss governments entered into an agreement that will allow for settlement with most Swiss banks who facilitated tax avoidance by US customers. The Swiss banks will be able to avoid or defer criminal prosecution if they: a) pay a penalty ranging from 20%-50% of the dollar amount of the subject assets, and b) agree to disclose client account information regarding their US taxpayers, including any recent transfers to other foreign banks. In a dramatic shift of sacred Swiss secrecy policy, the disclosure of what was once secret and protected information by law, can now be legally provided without penalty. This agreement is likely to involve in excess of 100 banks, and generate in excess of $1B in revenue to the IRS.
2) G20 Agreement to Stop Global Tax Evasion – In the recent G20 summit, the G20 leaders have committed to tax information sharing and fund tracking to assist in the ongoing efforts to prevent individual tax evasion as well as to ensure that corporate taxation takes place in the county where activities are performed and value created. At this point, this agreement is not limited to the G20 nations; rather, in excess of 50 countries have agreed to share such information. The goal is to achieve such tax information sharing by 2015.
The foregoing events are more than just a shot over the bow. The US has greatly increased its strength in global enforcement against noncompliant US taxpayers and continues to demonstrate its resolve to uncover and prosecute tax dodgers. So, what should the noncompliant taxpayer do? Come forward and disclose immediately!
For those who are unaware, the IRS has set forth a Voluntary Disclosure Program for taxpayers that have failed to properly report their foreign assets or income. Provided that the taxpayer is not under investigation or audit already, the taxpayer may come forward and report all years from 2003 on, and avoid criminal prosecution. The Voluntary Disclosure Program requires the taxpayer to pay:
- the tax that should have originally been paid;
- interest on the unpaid tax;
- a penalty of 27.5% of the highest aggregate balance during the unreported years; and,
- a penalty of 20% of the income tax owed.
While the penalties do add up, liberty does have a value. Most importantly, however, the US taxpayer must get to the IRS first! If they get to you first, the IRS is already demonstrating a lack of mercy in the prosecution given that this is now the third Voluntary Disclosure Program of its kind since the initial UBS/Swiss investigation began. You can indeed expect to go to jail.
And make no mistake in your interpretation of the Swiss and G20 agreements – the day is coming soon when your foreign bank, trust company, financial institution, or regulator will be disclosing all of your information to the US government, whether you came clean or not. If the secrecy laws in Switzerland can be broken by the US, all secrecy laws can be pierced.
In sum, if you have offshore assets, entities, trusts, accounts, or income in your structure, it is a new day for tax compliance. Don’t ignore the writing on the wall which is now bold, underlined, and in ALLCAPS: IT IS TIME FOR YOU TO FULLY DISCLOSE YOUR FOREIGN ASSETS AND INCOME – BECAUSE IF YOU DON’T, SOMEONE ELSE WILL, AND YOU WILL LIKELY FIND YOURELF BEHIND BARS.
