Tax Controversy with IRS over Foreign Bank Accounts or Assets

Should you receive a letter from your Swiss bank, you need to seek experienced tax counsel to handle your tax controversy. The IRS (through the Dept of the Treasury) is continuing its efforts to pry open the time honored Swiss bank secrecy practices and force the Swiss banks to reveal their U.S. clients. The IRS suspects that thousands of wealthy "U.S. Citizens" (defined under Title 31 to include permanent residents with "Green Cards" and naturalized citizens) are evading billions of dollars in taxes by using Swiss and other countries' private banks. Further, those U.S. Citizens who thought they might have escaped detection by moving their accounts to smaller, more parochial, little town banks, are not now sheltered either, as the IRS is now looking into those smaller banks as well. It is understood that Switzerland is trying to craft a deal with the United States that would cover its entire banking industry of some 355 banks. It is unclear how many American clients of Swiss banks (having ownersip or even mere signature authority over private banking accounts) have gone undeclared to U.S. tax authorities.

The effort to force compliance of the foreign account and asset reporting laws is fairly recent, but gained a huge publicity coup in 2009 when the major Swiss bank, USB, succumbed to the Dept of the Treasury's pressure to disgorge 4,500 account names. The Dept of the Treasury is now conducting an ever widening criminal investigation into scores of Swiss banks, and today Credit Suisse, AG, Switzerland's second largest bank, is in the news.

As a result, Credit Suisse has begun notifying its U.S. clients that it intends to turn over their names to the U.S. Internal Revenue Service; this with the help of Swiss tax authorities. Credit Suisse's notification by letter says the handover of names and account details will take place soon. It was unclear how many U.S. clients had been sent the letter. The letter says that the IRS request covers accounts maintained at any time over the period from Jan. 1, 2002, through Dec. 31, 2010. The U.S. Citizen can either consent to or oppose the handover of their bank information.

The U.S. has a tax treaty with Switzerland to govern the tax treatment of each respective countrys' citizens that reside in each other's countries, work there, or hold assets there. The interpretation of the provisions of the tax treaties are often in dispute. The fact that the Swiss tax authorities have ordered Credit Suisse to provide it the requested data to hand over to the IRS represented "a further erosion of longstanding Swiss bank secrecy."

Should you require consultation or assistance in communicating with the IRS, we can help. Before you try to resolve any tax controversy yourself, seek experienced legal tax advice. The first communication must be properly approached, as these issues are criminal in nature and you need to preserve your rights and options.