Swiss Bank BSI Account Holders Now Subject to 50% Penalty for Undisclosed Offshore Assets

By Robert A. Ladislaw, Esq.

Background of the Offshore Voluntary Disclosure Program

U.S. taxpayers with undisclosed assets offshore may enter the Offshore Voluntary Disclosure Program (the “OVDP”) being administered by the Internal Revenue Service.  Taxpayers entering this program are generally subject to a miscellaneous offshore penalty of 27.5% of the highest value of their undisclosed assets held offshore during the previous 8 years, including non-financial assets such as real estate and art.

However, pursuant to FAQ 1.1 published by the IRS, a 50% offshore penalty applies (instead of the 27.5% penalty) when a taxpayer has an account at certain identified financial institutions, or if the taxpayer established the account with certain identified facilitators.  Specifically, the 50% penalty will apply if either of the following has been publicly identified as being under investigation or as cooperating with a government investigation: (1) a foreign financial institution at which the taxpayer has or had an account; or (2) a facilitator who helped the taxpayer establish or maintain an offshore arrangement.

Once the 50% penalty applies, it will apply to all of the taxpayer’s undisclosed offshore assets, not just the account at the identified institution.  The IRS publishes a list of banks and facilitators that are under investigation, or are cooperating with a government investigation, and thus would cause the taxpayer to be subject to the 50% penalty.

Taxpayers caught by the IRS who have not entered the OVDP are increasingly being subjected to criminal prosecution, especially where the unreported balances are significant.  Therefore, if a taxpayer had or still has an undisclosed account at one of the institutions on the list, they should enter the OVDP as soon as possible.

 Update: BSI SA added to the “50% Penalty” list

On March 30, 2015, the Department of Justice (the “DOJ”) announced that BSI SA, one of the 10 largest private banks in Switzerland, is the first bank to reach a resolution under the DOJ’s Swiss Bank Program.  Pursuant to the program, BSI will provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest.  BSI will also provide detailed information as to other banks that transferred funds into secret accounts, or that accepted funds when secret accounts were closed.

As a result of the agreement with the DOJ, BSI is now on the list of banks in which account holders who have not previously come forward will be subject to the 50% penalty if they now enter the OVDP.  Nonetheless, these delinquent account holders should come forward now.  If the IRS contacts a taxpayer with an account at BSI before the taxpayer enters the OVDP, the likelihood of criminal prosecution will be significantly higher.

The following are the banks and facilitators currently on the list maintained by the IRS:

  1. UBS AG
  2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
  3. Wegelin & Co.
  4. Liechtensteinische Landesbank AG
  5. Zurcher Kantonalbank
  6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
  7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
  8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
  9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
  10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
  11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
  12. 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)
  13. BSI SA (effective 3/30/15)

Please contact Robert Ladislaw or William Blum with any inquiries.

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