One of the areas that I focus on in my practice is unreported foreign accounts. Several clients have come to me asking what they should do about their foreign accounts that have never been reported to the IRS. A couple of recent developments have turned up the urgency in deciding what course of action to take. First, the US and Swiss governments have recently entered into an agreement that will allow Swiss banks to settle their disputes with the US tax authorities. You can be sure that part of the settlements will include turning over the names of US citizens with hidden Swiss bank accounts. More of these agreements with other countries will come.
The second recent event is the recent guilty plea of Edgar Paltzer, a US-educated, Swiss attorney. Mr. Paltzer, 57, conspired with US taxpayer-clients to help US taxpayers hide millions of dollars in offshore accounts from the IRS. He further helped these clients evade US income taxes on the earnings from the accounts. Mr. Paltzer faces up to 5 years in prison, a sentence that will likely be shortened through his cooperation with the government, i.e., naming names.
So what should someone who has a hidden foreign account do? The riskiest tactic is to do nothing and see where the shoe falls. The account holder can make a “quiet” or “new” disclosure. This means either amending past returns to include the accounts or starting to report them from this point forward. These are also risky tactics, as the Government Accounting Office (GAO) has told the IRS to be looking for quiet and new disclosures. Finally, there is an offshore voluntary disclosure program that can enable the account owner to come forward, pay taxes, interest and penalties, but avoid criminal prosecution. The decision tree is complicated and the holder of a secret account should consult an experienced attorney to determine what course of action is the best, given the specific circumstances.