Credit Suisse Group AG, Switzerland’s second-biggest bank, has informed its U.S. clients that it intends to disclose confidential client account data to the Swiss taxing authorities, who will then decide whether to disclose it to the IRS. This development comes as the U.S. has been conducting criminal probes of 11 Swiss financial institutions, and as U.S. and Swiss officials are concluding talks on a civil settlement that could require Swiss banks to pay billions of dollars in restitution and hand over the names of thousands of U.S. citizens who have undocumented accounts.
Some might recall a similar incident in February 2009, when UBS AG, the biggest bank in Switzerland, avoided criminal prosecution by admitting it had fostered tax evasion, paying $780 million in restitution, and giving the IRS data on more than 250 accounts. UBS later turned over data on another 4,450 accounts and, in October 2010, the U.S. dropped its criminal case.
The IRS has previously allowed for a “voluntary disclosure” window wherein those with offshore undisclosed accounts are given the opportunity to report their holdings without fear of criminal prosecution, although the penalties and fines remain steep. The most recent voluntary disclosure campaign ended in September of 2011 and it remains unclear whether the IRS will extend another opportunity for Credit Suisse clients to fess up before the disclosures occur.
Though the window may have closed on the 2011 voluntary disclosure initiative, taxpayers with undisclosed foreign assets may still be able to file a traditional voluntary disclosure which would allow them to avoid potential criminal prosecution. However, there are some significant disadvantages between the specific voluntary disclosure initiatives and the more traditional general voluntary disclosure. For example, the specific voluntary disclosure programs tend to more clearly spell out all the penalties that will be involved, whereas general disclosures are more uncertain and may be more costly.
Taxpayers who do not submit to any sort of voluntary disclosure continue to run the risk of detection by the IRS and may face the imposition of substantial penalties, including the fraud penalty and foreign information return penalties, and, most importantly, an increased risk of criminal prosecution. There is no statute of limitations for fraud of failure to report income. Thus, if the taxpayer fails to file a return or files a return that is false or fraudulent then an audit or collection procedure may being at any time.
Clearly, the IRS is continuing to make progress in its aggressive attack against offshore tax havens. Taxpayers who have utilized offshore accounts to hide income from the IRS would be well-advised to contact a knowledgeable tax attorney to discuss whether it makes sense for them to make a voluntary disclosure, before they receive notice that their bank is making the disclosure for them.