Swiss Bank Letters Cause Legal Complications for U.S. Taxpayers

The Swiss Bank letters continue to pour into the mailboxes of U.S. taxpayers with bank and financial accounts in Switzerland as the April 30th deadline approaches for many Swiss banks that participate in the ongoing U.S. Department of Justice (“DOJ”) The Program for Non-Prosecution Agreements or Non-Target Letters for Swiss Banks (the “Program”). In an earlier article, I already discussed what the Swiss Bank letters contain, and the importance of the need for the comprehensive analysis of the offshore voluntary disclosure options. In this article, I would like to concentrate on another aspect of Swiss Bank letters – the top three legal complications that these Swiss Bank letters cause to U.S. taxpayers.

1. Swiss Bank Letters Provide Notice of Non-Compliance with the FBAR and Other International Tax Compliance Requirements

The first problem with the Swiss Bank Letters is that they provide the notice of non-compliance with the FBAR and other important international tax requirements (depending on the Bank, it can include such Forms as 5471, 8865, 926, 3520 and so on). The issue here is not so much that the Banks are making their U.S. taxpayers aware of the U.S. tax reporting requirements, but the context in which this is done.

If the Swiss Bank letters were to arrive upon the opening of a Swiss bank account or, at least, prior to the Program, it would be a huge benefit to the unsuspecting U.S. taxpayers. However, this is not the case. Rather, the notice of these requirements is given after a potentially substantial period of non-compliance with these requirements.

Moreover, the Swiss Bank letters provide a notice of non-compliance in the context of forced disclosure under the terms of the Program. Such notice has a potential to taint disclosures outside of the OVDP with the same air of the taxpayer being “forced” to disclose as opposed to doing it voluntarily (at the very least, the argument that the taxpayer is doing this disclosure without any pressure from the IRS definitely loses credibility).

Finally, the Swiss Bank letters provide a Notice of non-compliance with requirements, without even attempting to educate their audience about these requirements or suggesting to contact an international tax attorney to see if these taxpayers are really in violation of these requirements. For example, how would a taxpayer know whether Form 3520 requirement actually applies to him?

2. Swiss Bank Letters Start the Clock for Disclosure Under Extreme Time Pressure

The second problem with Swiss Bank letters is that they start the clock for the taxpayer to be able to disclosure his accounts voluntarily under an enormous time pressure. A lot of the banks that send these Swiss Bank letters will disclose by April 30, 2014. This means that the taxpayers who receive the Notice today have less than two months to disclose their accounts voluntarily before they run an enormous risk of prior disclosure of their accounts by Swiss banks to the IRS (with the effect on potentially preventing these taxpayers from entering into the OVDP). Even the taxpayers who received notices at the end of last year and January of this year are not much better off.

This is a very big problem, because time pressure may not allow the taxpayers to choose the right type of voluntary disclosure. Moreover, even if they wanted to do one type of disclosure rather than another, their options may be limited due to insufficient time to implement the strategies necessary to make their preferred choice of the voluntary disclosure successful.

3. Swiss Bank Letters May Mislead U.S. Taxpayers in Believing that OVDP is the Only Option

Swiss Bank letters uniformly advise their clients to enter into the OVDP without ever mentioning any alternatives. It is as if the assumption of willful failure to file FBARs is already written into the Swiss Bank letters. Theoretically, one could even argue that, by advising taxpayers to enter the OVDP instead of consulting an international tax attorney about their options, some of the Swiss Bank letters over-step their boundaries and enter the world of giving legal advice without a license.

At the practical level, the problem is even more profound. The Swiss Bank letters have the potential to mislead U.S. taxpayers with undisclosed accounts into believing that OVDP is the only option available to them and they have to take this option because their bank will soon disclose their accounts to the IRS. While, undoubtedly, OVDP may be the best option in many cases, this may not be true in other cases. The problem is that, the way Swiss Bank letters are drafted, the U.S. taxpayers may never be even given the choice.

Contact Sherayzen Law Office for Help If You Received Swiss Bank Letters

Sherayzen Law Office is here to help you with the voluntary disclosure of your Swiss bank and financial accounts. Owner Eugene Sherayzen is an international tax attorney and expert in this field who can analyze the facts of your case and explain to you the available voluntary disclosure options. After you choose the voluntary disclosure option, our firm can prepare all legal documents and tax forms required for your voluntary disclosure, fully implement the ethically available strategies and rigorously defend your position against the IRS.

Contact Us for a Confidential and Privileged Consultation!