Wednesday, November 3, 2010

Another Foreign Bank -- in Israel -- Gets In Line

Bank Leumi, Israel's largest bank, "is asking its clients to declare that they are not U.S. persons or reveal their accounts to U.S. authorities."  See Reuters report here and Tax Justice Network blog here.  The report says taht other foreign banks are sending similar letters.  Scott Michel, a prominent U.S. practitioner in this area, is quoted as saying:  "Most [offshore] banks will have to do this sort of thing."


  1. As foreign banks digest and strategize to implement FATCA and updated QI policy, it would seem to greatly increase reports such as this. One could conclude that it would cause either:a huge increase in voluntary disclosures or noncompliant account holders to flee to locations where FATCA and QI are nonsuscribed to or for prosecutions of offshore violations to spike significantly. I would guess that we will see an increase in all of these and possibly a continued increase in expatriation.
    In my mind the prudent thing to do would have been to utilize the 2009 special initiative to clean up. With that window of opportunity now being closed, people who want to become compliant face daunting choices. Never the less, it may be prudent to assume a 50% FBAR penalty and dive into voluntary disclosure. At least this could reduce the chances of criminal sanctions. I do not think the situation is getting any better in the near future based on actions and statements by the IRS and DOJ.
    People in this situation are really boxed in by fear and uncertainty. Its kind of like choosing between walking into a meat grinder or being drug into a meat grinder.

  2. Anonymous,

    The 2009 initiative may have formally closed on 10/15/09, but a variation is still available (the variable being uncertainty as to the percentage amount (20% under the program ending 10/15/09, but almost certainly higher than that for those entering after 10/15/09). In all events, joining the post 10/15/09 program can resolve the criminal investigation and prosecution risk (unless the IRS has identified the person before he attempts to join the program).

  3. I agree that a post-10/15/09 disclosure may be better than no disclosure at all, and agree with Jack that the big variable is the penalty. As a practitioner, it's very difficult to advise clients when the answer is so vague. Even IRS agents with whom I speak are flummoxed at the lack of guidance as to what the penalty will be. 20%? Unlikely, because it would reward late filers with the same benefit as if they had enrolled into the VDP before it expired last October. By law, the IRS can take 50% of the value of the account for each year. But in its tax fraud prosecutions, as this blog frequently reports, the government has been imposing a 50% penalty for a single year. So it seems reasonable that the government would not exceed 50%/single year as a voluntary disclosure penalty, when that seems to be the standard for a criminal defendant.

  4. For genuine offshore "evaders" who hold either untaxed or lightly taxed cash outside the US, even the 50%-of-highest-balance penalty might be tolerable, albeit with some pain.

    For accidental or unaware folk, though, doubtless the great majority, even the 20% was far too much to swallow. A US citizen who moved out of the US decades ago is now highly motivated to ignore all of this and instead simply renounce US citizenship. A non-US citizen living in the US who had no choice but to leave retirement accounts sitting in his home country is now highly motivated to leave the US entirely, and as quickly as possible.

    The net loser will be the US. We are already starting to see a new brain drain, only this time out, not in. Even worse, how does one measure the number of highly skilled foreigners who will choose other countries over the US when considering the best locations in which to work and develop their talents?


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