US Tax Consequences of the New Indian Gold Monetisation Scheme

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A recent article from Reuters discusses the appearance of the new Indian Gold Monetisation Scheme. The idea is to allow Indians to deposit gold into the banks in return for interest payments; in return, the Indian government is hoping to utilize the gold hoarded by its citizens to reduce gold imports.

While the idea is that the Indian Gold Monetisation Plan will be open to resident Indians only, it is likely that at least some US tax residents will be able to participate in the scheme either as US citizens and US permanent residents (who are US tax residents irrespective of where they live) or as Indian non-residents who never declared their non-residency status in India.

This article intends to explore some of the potential US tax problems that may arise as are result of participation in the Indian Gold Monetisation Scheme. The conclusions drawn in this article are preliminary and they may or may not reflect the actual IRS position in the future; the conclusions are and also should be treated simply as general discussion of the subject, not as a legal advice.

2015 Indian Gold Monetisation Scheme

In October 25, 2015, Indian Prime Minister Narendra Modi announced that a new Indian Gold Monetisation Scheme will be in place by the time of an ancient Hindu festival – Diwali (November 11, 2015). Under the scheme, Indian residents (as well as mutual funds and ETFs) will be able to use gold to open an essentially a fixed-deposit bank account (based on a gold certificate) with an Indian bank; in return, they will receive a gold certificate valued at the “prevailing gold price” at the time the account is opened and they will further receive interest on these gold deposits.

The gold will be collected by the Collection and Purity Testing Centers (CPTCs) certified by the Bureau of Indian Standards. The banks will issue the gold certificates against these gold deposits.

The new bank accounts will start earning interest after the deposited gold is refined into tradable gold bars or 30 days after the receipt of gold at the CPTCs or the bank’s designated branch – whichever is earlier.

There will be three types of fixed-deposit accounts under the Indian Gold Monetisation Scheme: short-term (1-3 years), medium term (5-7 years) and long-term (12-15 years). The banks will determine any premature withdrawal penalties.

Upon the maturity of the fixed-deposit account, the depositor will receive either the gold or the equivalent amount in rupees. The choice of receiving the gold or the rupees needs to be made at the time the account is opened.

Indian Tax Treatment of Interest and Capital Gains Earned As a Result of the Indian Gold Monetisation Scheme

In this Indian Gold Monetisation Scheme, there are three potential points of tax recognition by the participating depositors: capital gain on the original gold deposit, interest earned on the gold deposit at maturity and capital gain at the point of gold redemption (or principal redemption) at the then-current market prices.

The Indian government does not tax any of these three tax recognition events – i.e. neither capital gains nor the interest earned.

Potential US Tax Treatment of Interest Earned As Part of Indian Gold Monetisation Scheme

Despite the fact that Indian government does not tax the interest return on the gold certificates and absent any tax treaty changes, I believe that the most likely outcome is that this interest will be taxed as ordinary income in the United States. There is some marginal potential for the interest to be treated as collectible gain, but I just do not see this as a likely scenario when the IRS has a chance to make a ruling on it.

Potential Problems in US Tax Treatment of the Initial Deposit of Gold to Obtain Gold Certificates under the Indian Gold Monetisation Scheme

Generally, in the United States, any gain on the sale of gold bars and gold jewelry is treated as a capital gain from the sale of a collectible subject to 28% tax gain. There is a potential additional 3.8% Net Investment Income Tax as a result of Obamacare.

The question really becomes whether the opening of the gold account under the Gold Monetisation Scheme, where the gold is being melted into bars and the depositor receives a gold certificate with a rupee account at fair market value, should be considered as a sale or exchange of gold or is this just a 1031 exchange of the like properties?

The answer cannot be given with any certainty at this point, because the IRS has made no rulings on this very subject. However, it is possible that such an even will be treated by the IRS as a taxable exchange, because the gold is transformed into a rupees-based deposit account based on its market value – i.e. the number of rupees given to the depositor is equivalent to the fair market value, not the cost-basis that the depositor has at the point the gold is given to CPTCs.

On the other hand, the IRS could agree with an argument that, under the Indian Gold Monetisation Scheme, the gold is nothing but a guarantee for the rupee deposit account. Since the depositor receives a Gold Certificate and can get the same gold back upon the maturity of the account, it does not seem fair to tax the gain on the gold at this point (this argument, may not work if the deposit chooses to receive the original deposit back in rupees). If the 1031 rules are used to analyze this situation, the majority of secondary sources (such as EFT law firm opinions) seem to indicate that there may not be a taxable exchange for US tax purposes in this case. I tend to agree with this position in most situations, but it is too early to make the final determination at this point.

There is actually merit to both arguments and, until the gold certificates are actually issued and all facts can be analyzed, it is difficult to state what the IRS position will be.

Potential US Tax Treatment of the Gold/Rupee Redemption Based on Gold Certificates Issued under the Indian Gold Monetisation Scheme

There are two issues here: (1) is the gold redemption considered to be a taxable event; (2) is the rupee redemption under the gold certificates considered to be a taxable and how should it be taxed.

1. Gold Redemption

Let’s analyze the physical gold redemption first. It appears that the deposit will be able to obtain the same amount of gold irrespective of the changes in value since the original gold was melted into bars at CPTCs. This means that, if the 1 gram of gold is originally melted at 2,500 rupees, and rises in price to 3,000 rupees within three years, the deposit will still get one gram of gold. There seems to be a gain here of 500 rupees, but there is no actual monetization of gain. This is a hypothetical gain on the conversion of the gold certificate into physical gold.

The taxation of gain in a situation where one form of gold is transformed into another form of gold is one of the most complex topics in the US taxation of collectibles. Often times, even the same certificates may be taxed in a different manner.

Due to the fact that this topic is heavily fact-dependent with little IRS official guidance, it is best to delay the answer of this question until the time when these certificates are issued and can be analyzed in the actual factual context. At that time, if you have any questions regarding taxation of your gold certificate, contact Sherayzen Law Office directly.

2. Rupee Redemption

Unlike the gold redemption (which, depending on the circumstances, may not be taxable at all), the issue of taxability of the rupee redemption of the gold is fairly straightforward – this is a taxable event where gold is exchanged for rupees. Most likely, this exchange will be taxed in the United States as a collectible capital gain rate of 28% percent.

However, there are a couple of complications with respect to calculating the collectible gain. First, it should be remembered that the collectible gain should be calculated in US dollars (contact Sherayzen Law Office directly for more information). Second, the cost-basis of the gold will depend on whether the conversion of gold into a Gold Certificate is considered to be a taxable gain. If it is, then, the cost basis would be the fair market value at the time the gold is submitted by the depositor to be melted into bars at CPTCs. If it is not, then the original cost-basis (i.e. what the gold was actually acquired for) will be used in the determination of the collectible gain.

Other Issues Regarding 2015 Indian Gold Monetisation Scheme

In addition to US collectible and interest tax issues discussed above, investing through Indian Gold Monetisation Scheme may bring forth other US tax requirements. In particular, I wish to emphasize here that accounts opened through Indian Gold Monetisation Scheme are most likely reportable accounts for FBAR and Form 8938 purposes.

Contact Sherayzen Law Office for Help With US Tax Compliance

If you are a US person who has foreign accounts, foreign assets and/or foreign income, you should contact Sherayzen Law Office for professional help with your US tax compliance. Our experienced legal team, headed by the firm’s founder, attorney Eugene Sherayzen, will thoroughly analyze your case, identify your current and past US international tax compliance issues, develop a compliance plan for you (whether for current-year compliance or as part of your voluntary disclosure), and implement this plan, including preparation of all legal documents and tax forms.

US international tax laws are complex and should be handled by professionals with deep knowledge of the subject matter. This why You should contact Sherayzen Law Office Now!

Higher OVDP Penalties May Affect More US Taxpayers

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As of August 25, 2015, and as a result of increasing number of DOJ Swiss Bank Program Non-Prosecution agreements, 2015, higher OVDP penalties (50 %) apply to US account holders of 43 banks. Between August 1 and August 20, 2015, six more banks were added to the 50% penalty list. In this article, I would like to discuss this trend of higher OVDP penalties and analyze how it affects US taxpayers with undisclosed foreign accounts.

2014 OVDP Background

The 2014 IRS Offshore Voluntary Disclosure Program (“OVDP”) is a sequel to at least six prior voluntary disclosure initiatives since 2003. In reality, 2014 OVDP most closely resembles 2012 OVDP, but there are some crucial differences between 2014 OVDP and 2012 OVDP both now closed.

2012 OVDP was a voluntary disclosure program created by the IRS to allow U.S. taxpayers with undisclosed foreign accounts to come forward and settle their US tax problems related to foreign accounts under specific terms. The biggest advantage to participating in the 2012 OVDP (and it remains the same for 2014 OVDP) was the reduction of civil penalties (especially in a willful situation) and avoidance of criminal liability.

Over the years, the offshore voluntary disclosure programs have gotten more and more demanding in terms of information that needed to be submitted by the participating taxpayers and penalties that needed to be paid. Since 2012 OVDP never considered the difference between willful and non-willful taxpayers, many international tax lawyers considered it unfair for non-willful taxpayers to participate in the OVDP.

Learning from these experiences, the IRS realized that it could get better and more widespread compliance if it is able to effectively process non-willful taxpayers while, at the same time, imposing harsher penalties on willful taxpayers. Hence, the IRS implemented dramatic changes to the 2012 OVDP; from these changes, the Streamlined Options and 2014 OVDP with higher OVDP penalties were born.

Higher OVDP Penalties under 2014 OVDP

Since most of the non-willful taxpayers were likely to follow the Streamlined options, the IRS felt that it could impose higher OVDP penalties on the more stubborn willful taxpayers, particularly taxpayers with undisclosed Swiss accounts who did not heed the IRS warnings and did not enter the 2014 OVDP timely.

From this desire, the dual-tier OVDP penalty system was born. The first tier imposes a regular 27.5% (of the” OVDP penalty base”) penalty if the foreign accounts of US taxpayers who entered the OVDP program were not held in the banks on the IRS list. Also, there was a limited opportunity to enter the OVDP at 27.5% penalty rate even the “listed” foreign bank accounts if the taxpayer filed the preclearance request prior to August 4, 2014.

The second tier imposes higher OVDP penalties of 50% if the taxpayer filed the preclearance request after August 4, 2014, and the foreign accounts were held at a bank which is on the IRS list of foreign banks/facilitators.

DOJ Swiss Bank Program and the Expansion of the IRS List of Foreign Banks/ Facilitators

Initially, the IRS List of Foreign Banks consisted of a dozen banks already under investigation as of June 18, 2014, which included such big names as UBS, Credit Swiss, Zurcher Kantonalbank, et cetera. This means that higher OVDP penalties were imposed on US taxpayers with undisclosed foreign accounts at these banks if these taxpayers did not file the preclearance request timely.

On August 29, 2013, the US Department of Justice announced an unprecedented initiative – The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (“Swiss Bank Program”) – which was intended to allow Swiss banks avoid DOJ prosecution in exchange for disclosure of their non-compliant US account holders and payment of monetary penalties. In essence, this was a voluntary disclosure program for Swiss banks similar to OVDP for US individuals (and, similarly to higher OVDP penalties, the Swiss Bank Program also had its own graduated scale of penalties).

More than one hundred Swiss banks decided to participate in the DOJ Swiss Bank Program and complied with December 31, 2013 filing deadline. Starting March of 2015, the Swiss Bank Program entered its final stage in which the DOJ and the Swiss banks entered into individualized Non-Prosecution Agreement.

As these banks enter into the Non-Prosecution Agreements, the IRS adds each bank to the IRS List of Foreign Banks. This directly results in higher OVDP penalties for US taxpayers who owned foreign accounts at the “listed” banks and did not file the OVDP preclearance requests prior to the relevant Non-Prosecution Agreement.

As of August 26, 2015, this list consists virtually exclusively of Swiss banks and includes 43 foreign banks:

UBS AG
Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
Wegelin & Co.
Liechtensteinische Landesbank AG
Zurcher Kantonalbank
swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
Bank Leumi le-Israel B.M., The Bank Leumi le-Israel Trust Company Ltd, Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
BSI SA (effective 3/30/15)
Vadian Bank AG (effective 5/8/15)
Finter Bank Zurich AG (effective 5/15/15)
Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
MediBank AG (effective 5/28/15)
LBBW (Schweiz) AG (effective 5/28/15)
Scobag Privatbank AG (effective 5/28/15)
Rothschild Bank AG (effective 6/3/15)
Banca Credinvest SA (effective 6/3/15)
Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
Berner Kantonalbank AG (effective 6/9/15)
Bank Linth LLB AG (effective 6/19/15)
Bank Sparhafen Zurich AG (effective 6/19/15)
Ersparniskasse Schaffhausen AG (effective 6/26/15)
Privatbank Von Graffenried AG (effective 7/2/15)
Banque Pasche SA (effective 7/9/15)
ARVEST Privatbank AG (effective 7/9/15)
Mercantil Bank (Schweiz) AG (effective 7/16/15)
Banque Cantonale Neuchateloise (effective 7/16/15)
Nidwaldner Kantonalbank (effective 7/16/15)
SB Saanen Bank AG (effective 7/23/15)
Privatbank Bellerive AG (effective 7/23/15)
PKB Privatbank AG (effective 7/30/15)
Falcon Private Bank AG (effective 7/30/15)
Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
Bank EKI Genossenschaft (effective 8/3/15)
Privatbank Reichmuth & Co. (effective 8/6/15)
Banque Cantonale du Jura SA (effective 8/6/15)
Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
bank zweiplus ag (effective 8/20/15)
Banca dello Stato del Cantone Ticino (effective 8/20/15)

Possible Future Scenario: Higher OVDP Penalties for Non-Swiss Bank Accounts?

Given the success of the Swiss Bank Program, I expect that this experience maybe applied by the IRS in another country and even worldwide. If this happens, higher OVDP penalties may affect a larger percentage of US taxpayers with undisclosed foreign accounts outside of Switzerland. Israel, Singapore, the Caribbean islands (e.g. the Cayman Islands) and other tax shelter and low-tax jurisdictions are all good candidates for the expansion of the Swiss Bank Program.

Impact on US Taxpayers

Given the continuous expansion of the IRS List of Foreign Banks (as a result of Swiss Bank Program Resolutions), more and more US taxpayers are likely to be affected by the higher OVDP penalties. Moreover, in light of the potential expansion of the Swiss Bank Program to other countries, it is very likely that higher OVDP penalties will commence to impact more US taxpayers with non-Swiss foreign accounts. Finally, there is a possibility that the almost worldwide implementation of FATCA may lead to higher OVDP penalties in the future.

Thus, in light of these developments, US taxpayers with undisclosed foreign accounts should contact an experienced international tax attorney to review their offshore voluntary disclosure options. Failure to do so may lead not only to higher OVDP penalties down the road, but also to the total loss of the possibility of doing a voluntary disclosure (for example, if the IRS commences an investigation) and imposition of willful FBAR penalties.

Contact Sherayzen Law Office for Professional Help With Your Offshore Voluntary Disclosure

This is why you should contact the experienced legal team of Sherayzen Law Office lead by the founder of the firm – Eugene Sherayzen, Esq. Mr. Sherayzen is a highly experienced international tax attorney who has helped hundreds of US taxpayers worldwide to bring their US tax affairs in full compliance with US tax laws. He can help you!

Swiss Bank Program Update: Bank Zweiplus and Banca Stato del Cantone Ticino

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On August 20, 2015, the US Department of Justice announced another Swiss Bank Program update – Bank Zweiplus AG (Bank Zweiplus) and Banca dello Stato del Cantone Ticino (Banca Stato) have reached resolutions under the department’s Swiss Bank Program.

The Swiss Bank Program, which was announced on August 29, 2013, provides a path for Swiss banks to resolve potential criminal liabilities in the United States. Swiss banks eligible to enter the program were required to advise the department by December 31, 2013, that they had reason to believe that they had committed tax-related criminal offenses in connection with undeclared U.S.-related accounts. Banks already under criminal investigation related to their Swiss-banking activities and all individuals were expressly excluded from the program.

Swiss Bank Program Update: Bank Zweiplus Background and Non-Prosecution Agreement

As part of its Swiss Bank Program Update, the DOJ provided various background information regarding Bank Zweiplus. The Bank was founded in July 2008 as a retail bank based in Zurich. Offices located in Geneva and Basel, Switzerland, were closed in 2008 and 2012, respectively. Since Aug. 1, 2008, Bank Zweiplus maintained and serviced 44 U.S.-related accounts with an aggregate value of approximately $12.1 million.

Bank Zweiplus was aware that U.S. taxpayers have a legal duty to report to the Internal Revenue Service (IRS) their ownership of bank accounts outside the United States and to pay taxes on income earned in such accounts. Nevertheless, in disregard of U.S. laws, the bank provided a variety of traditional Swiss banking services that assisted some U.S. taxpayers in concealing their undeclared accounts. For example, Bank Zweiplus maintained numbered accounts and accounts held in the name of structures which were effectively owned or controlled by U.S. persons, including structures in the British Virgin Islands and the Bahamas.

Bank Zweiplus cooperated with the department during its participation in the Swiss Bank Program and encouraged its U.S. clients to enter the IRS Offshore Voluntary Disclosure Program (nowclosed). Bank Zweiplus will pay a penalty of $1.089 million.

Swiss Bank Program Update: Banca Stato Background and Non-Prosecution Agreement

As part of its Swiss Bank Program Update, the DOJ provided various background information regarding Banca Stato. Banca Stato was established in 1915 and is headquartered in Bellinzona, Switzerland. Banca Stato was aware that U.S. taxpayers had a legal duty to report to the IRS and pay taxes on the basis of all of their income, including income earned in accounts that the U.S. taxpayers maintained at the bank. Despite this, the bank opened and serviced accounts for U.S. clients who the bank knew or had reason to know were not complying with their U.S. income tax obligations.

During the applicable period, Banca Stato maintained and serviced 187 U.S.-related accounts with an aggregate maximum balance of approximately $137 million. Banca Stato will pay a penalty of $3.393 million.

Impact of this Swiss Bank Program Update on US Taxpayers

Starting August 20, 2015, noncompliant U.S. accountholders at Bank Zweiplus and Banca Stato must now pay that 50 percent penalty to the IRS if they wish to enter the IRS Offshore Voluntary Disclosure Program.

Follow this link to the DOJ website for more information on this Swiss Bank Program Update.

FATCA Lawyer Update: India Signed FATCA Agreement

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On July 9, 2015, India finally signed the Intergovernmental Agreement (IGA) to implement FATCA. The fact is that the Indian signed FATCA Agreement has significant implications for millions of Indian-Americans who reside in the United States as well as outside of the United States.

India Signed FATCA: Background Information on FATCA

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to specifically target non-compliance by U.S. taxpayers using foreign accounts. Over the past few years, this law established a new global standard for promoting tax transparency and fighting tax evasion. More than 110 jurisdictions today operate under the worldwide reach of FATCA.

Generally, FATCA is a mechanism for US authorities to obtain information regarding foreign accounts held by US persons directly form the financial institutions. In essence, FATCA effectively turns all foreign financial entities that wish to comply with the law into IRS informants. In order to force other countries to accept FATCA, the US Congress armed FATCA with a global enforcement mechanism – the law requires U.S. financial institutions to withhold a portion of certain payments made to non-compliant foreign financial institutions (FFIs).

Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under U.S. Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States. India chose the latter route.

India Signed FATCA: Model 1 Agreement

On July 9, 2015, India signed FATCA Model 1 IGA. Unlike Model 2 IGA, Model 1 IGA will require Indian FFIs (banks, mutual funds, et cetera) to report information to India’s Central Board of Direct Taxes which will then turn over this information to the IRS. It is expected that various details and information regarding US-held Indian accounts will be provided to the IRS.

India Signed FATCA: US Will Provide Information to India Regarding Indian-held US accounts

India signed FATCA Agreement not only in order to provide information regarding US-held accounts in India, but also to obtain information regarding the assets held in the United States by Indian residents (so-called “black money”). – i.e. the FATCA Agreement signed by India is also a reciprocal Agreement. This means that the United States will also provide information to India regarding Indian-held accounts and assets in the United States.

India Signed FATCA: Implementation Schedule

India singed FATCA IGA with the agreement that the implementation of the IGA will begin on October 1, 2015. The automatic exchange of information between India and the United States is scheduled to begin on September 30, 2015. The reporting period due on October 1, 2015 will be July – December 2014.

India Signed FATCA: Consequences for Indian-Americans With Undisclosed Indian Accounts

For millions of Indian-Americans who have not yet disclosed their ownership of Indian accounts and other assets, the India FATCA IGA represents a potential disaster. They are facing the draconian civil and criminal FBAR penalties, income tax penalties (with interest), PFIC taxes, and other potentially devastating consequences.

The FATCA IGA started the clock for the Indian-Americans to immediately start exploring their voluntary disclosure options. If the IRS finds out about their non-compliance first, some or potentially all voluntary disclosure options may be closed for these taxpayers.

India Signed FATCA: What Should Indian-Americans With Undisclosed Indian Accounts Do?

If you are an Indian who is a US person with undisclosed foreign accounts, contact the experienced international tax team of Sherayzen Law office for professional help. Our legal team has helped hundreds of clients around the world, including Indians. We can hep you!

So, Contact Us to Schedule Your Confidential Initial Consultation Now!

Privatbank Von Graffenried AG Signs Non-Prosecution Agreement

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On July 2, 2015, the US Department of Justice announced that Privatbank Von Graffenried AG became the fifteenth bank to sign a Non-Prosecution Agreement under the DOJ’s Swiss Bank Program. It also became the 27th bank on the 50% penalty list for US taxpayers who wish to enter the OVDP.

Background Information

Von Graffenried is a private bank founded in 1992 and based in Bern, Switzerland. Starting in at least July 1998, Von Graffenried, through certain practices, assisted U.S. taxpayer-clients in evading their U.S. tax obligations, filing false federal tax returns with the Internal Revenue Service (IRS) and otherwise hiding assets maintained overseas from the IRS.

Von Graffenried opened and maintained undeclared accounts for U.S. taxpayers when it knew or should have known that, by doing so, it was helping these U.S. taxpayers violate their legal duties. Von Graffenried offered a variety of traditional Swiss banking services that it knew could assist, and that did assist, U.S. clients in the concealment of assets and income from the IRS. For example, Von Graffenried would hold all mail correspondence, including periodic statements and written communications for client review, thereby keeping documents reflecting the existence of the accounts outside the United States. Von Graffenried also offered numbered account services, replacing the accountholder’s identity with a number on bank statements and other documentation that was sent to the client.

In late 2008 and early 2009, Von Graffenried accepted accounts from two European nationals residing in the United States who had been forced to leave UBS and Credit Suisse, respectively. At the time it accepted the accounts, Von Graffenried knew that UBS was the target of an investigation by the Department of Justice. It also knew that both individuals had been forced to leave their respective banks because the banks were closing their accounts, and that both individuals had U.S. tax obligations and did not want the accounts disclosed to U.S. authorities. Senior management at Von Graffenried approved the opening of these accounts.

When Von Graffenried compliance personnel sought to obtain an IRS Form 8802, Application for U.S. Residency Certification, from one of the accountholders, that accountholder replied that completing the form would be problematic for him and that he believed the relationship manager knew why. The beneficial owner of the second account was referred by an external fiduciary, who handled the account at Credit Suisse. The fiduciary told a Von Graffenried relationship manager that Credit Suisse was attempting to exit its U.S. offshore clients to other banks if the clients would not sign an IRS Form W-9. The relationship manager agreed to take on the account, which was held by a Liechtenstein “stiftung,” or foundation, with the beneficial owner as the primary beneficiary and U.S. citizens as other beneficiaries.

Between July 1998 and July 2000, Von Graffenried accepted approximately two dozen accounts from a specific external asset manager. Von Graffenried was aware that the external asset manager seemed to be targeting U.S. clientele. Sixteen of the accounts were beneficially owned by individuals with U.S. tax and reporting obligations, and most of those accounts were held by U.S. citizens residing in the United States. At the time, Von Graffenried did not have a policy in place that required U.S. clients to show tax compliance. Consequently, Von Graffenried accepted these accounts without obtaining IRS Forms W-9 or assurances that the accounts were in fact tax compliant. By early 2009, Von Graffenried determined that some of the external asset manager’s accountholders likely were attempting to evade U.S. tax requirements. In 2010, Von Graffenried began to close the existing U.S.-related accounts that originated with the external asset manager. Von Graffenried did not complete the exit process for these accounts until late 2012.

Non-Prosecution Agreement with DOJ

According to the terms of the non-prosecution agreement signed on July 2, 2015, Von Graffenried agreed to cooperate in any related criminal or civil proceedings, demonstrate its implementation of controls to stop misconduct involving undeclared U.S. accounts and pay penalties in return for the department’s agreement not to prosecute Von Graffenried for tax-related criminal offenses.

Since August 1, 2008, Von Graffenried held a total of 58 U.S.-related accounts with approximately $459 million in assets. Von Graffenried will pay a penalty of $287,000.

In accordance with the terms of the Swiss Bank Program, Von Graffenried mitigated its penalty by encouraging U.S. accountholders to come into compliance with their U.S. tax and disclosure obligations.

Consequences for US Taxpayers With Undisclosed Accounts at Von Graffenried

There are two major consequences (for US taxpayers with undisclosed accounts) of the Von Graffenried’s participation in the Swiss Bank Program. First, as it was mentioned above, if such taxpayers with undisclosed financial accounts at Von Graffenried wish to enter the 2014 IRS Offshore Voluntary Disclosure Penalty, their penalty rate will now go up to 50% of the highest value of the accounts.

Second, as part of its participation in the Swiss Bank Program, Von Graffenried also had provided to the IRS certain account information related to U.S. taxpayers that will enable the IRS to make requests under the 1996 Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income for, among other things, the identities of U.S. accountholders. If the IRS is successful, then, these accountholders are likely to be rejected from the OVDP participation and may face draconian civil and criminal FBAR and income tax penalties.

Contact Sherayzen Law Office for Professional Help With Undisclosed Foreign Accounts

The number of banks which are coming forward to disclose their US clients’ accounts is growing rapidly with each passing month. Moreover, the great majority of the banks worldwide are also attempting to comply with various FATCA requirements.

This means that the longer US taxpayers with undisclosed foreign accounts wait, the more likely it is that their situation will worsen. The risk of the IRS discovery is higher today than ever before, and the consequences of such a discovery may be truly grisly.

This is why, if you have undisclosed foreign accounts or any other assets, contact Sherayzen Law Office as soon as possible. Our professional legal team is highly experienced in handling all types of offshore voluntary disclosures. We can handle the entire process of your voluntary disclosure from the beginning to the end, including the preparation of all tax forms and legal documents.

So, Contact Us Now to Schedule Your Confidential Consultation Now! We Can Help You!