Wednesday, March 26, 2014

Swiss Legislation to Forego Notice to Foreign Depositors of Treaty Country Request (3/26/14)

Readers of this blog might be interested in a recent blog by Virginia Le Torre Jeker, a practitioner representing expats from the U.S. and foreign persons regarding U.S. tax laws.  The blog is Swiss Account Holders – Losing the Right to be Informed About IRS Disclosure (Angloinfo 3/24/14), here.  The article discusses Swiss legislation that will permit Swiss tax authority to "turn over information to foreign governments on certain account holders with undeclared accounts in Swiss financial institutions without providing the holders any advance notice of the disclosure."  She says:
Under the amended law, information about those suspected of tax evasion can be sent to another country without prior notification to the account holder, provided the country to which the information will be sent can prove that giving such advance notice would hinder the investigation. 
Of course, US depositors should not hit the panic button yet.  I have not studied the legislation and just respond to Ms. Jeker's description of the legislation.  I suspect that the Swiss will give a reticent interpretation of its authority -- meaning that it will require a significant, if not very strong, proof that notice would hinder the investigation.  Seemingly, this type of authority would not fit with group requests of the type that will constitute most of the requests, at least by the U.S.  And, it would require, seemingly, the identify of the individual, the nature of the investigation, and a persuasive statement of why disclosure might hinder the investigation.  So, I doubt that, even when there are individual requests, the requesting country -- thinking particularly of the U.S. -- will automatically claim disclosure would hinder an investigation.  But that remains to be seen.

The article discusses also the procedure, if a foreign depositor is notified, to invoke to block disclosure and the requirement of 18 USC 3506 that U.S. depositors notify the US Attorney General of a proceeding to block disclosure.  Of course, generally, filing a proceeding to block the disclosure is not a meaningful exercise in most cases -- both because of the requirement to notify the Attorney General and the probability that, although some have been successful in the past, I doubt that many, if any, will in the future.  But, notice can permit the U.S. depositor to take other remedial measures, such as most prominently OVDP.


  1. Thanks, Jack. I have found your blog useful. While we "minnows" have developed fairly strong opinions on what policy ought to be with respect to so-called "offshore" accounts*, when considering options it's helpful to get information not filtered by opinions of the like-minded.

    (*Even the term "offshore account" is upsetting. How can an account in a local bank be considered "offshore"?)

  2. Good post Jack, and I have come to understand your approach and even when I come to find an opinion or perspective, that I disagree with, I still appreciate hearing it. I do know you have a very low regard for bullshit tax shelters and Swiss bankers and their intentions... LOL

    Yours as been great educational blog for many 'lay readers' such as myself, and I recognize that it is impossible for you, or anyone, to avoid the natural 'confirmational bias' that arises when conversation slips into policy discussion on what is right, fair, or appropriate for compliance.

    I do understand you are not writing a tax policy blog or generally advocating specifically for one law or another, but rather looking at the details of the law, their application and your interpretations. It is very helpful to have.

    However, it is impossible, it would seem to separate a strict reading of the law from its intended or unintended consequences and therein is where we get into grey areas. A law that has the opposite effect of its stated intentions or goes way beyond our understanding of 'due process' constitutional limitations does need calling out even if nothing seems to change U.S. policy.

  3. Previously the requesting party needed to identify the account holder. This has been changed so that accounts can be identified by a pattern of behavior (in the case of UBS it was individual accounts over $1m or entity accounts over $250K meeting other criteria.) So the US (or other requesting government) didn't need any info except to specify certain criteria and the Swiss decided that with the above criteria the info would be disclosed BUT the account holder would first be notified and be given a chance to oppose the request. As you pointed out Jack, few of those who opposed it were successful. Many may not have even tried.

    The proposed change would mean that the info can be handed over without prior notification to the account holder, if things are as the article state.

    By joining the disclosure program for banks, banks provide statistical information on US person accounts, and these statistics would then be used to craft a group request.

    The word "suspicion" as previously interpreted really meant meeting certain criteria for account size etc.

  4. Indeed, like Sally I believe you have a thoughtful blog peppered with useful links and commentary. We all would like a single silver bullet for matters of concerns relating to white collar crime... Still it is better to focus on tax crime as it is then what it should be. Ideally once day this blog might get full access to the administration of the Treasury ... As my Slavic dad used to say, it is better to be a master of one trade than jack of all trades ;-)

  5. Anonymous,

    Thank you for the comments.

    This is just an intuition at this point, but I am not sure that Switzerland will treat group requests where characteristics raise sufficient "suspicion" to permit the Swiss to respond is the same as proof that disclosure to the depositor will hinder the investigation. Again, just my intuition, I think the Swiss administrators will require more proof related to the taxpayer and thus this will apply in where the taxpayer is specifically identified in the request.

    I hope the readers who had some knowledge on this will report what they know.


  6. FBAR cases -- I presume you mean both criminal and civil -- generally come to my attention upon the first indictment that DOJ Tax or the USAO for the district of indictment announces in press releases. Sometimes colleagues will alert me and even send documents related to the cases.

    I also have certain Google automated searches that pick up some information about the cases.


    Jack Townsend

  7. I understand that, perhaps for some, details about the anecdotal instances of which I am aware might be helpful. My problem is attorney-client privilege. While the matters are still in play with the IRS, an attorney would be ill-advised, in my view, to give the details and a client would be ill-advised to permit the attorney to do so. Sorry.

    Jack Townsend

  8. Michael J. MillerMarch 27, 2014 at 8:39 PM

    I'm not at all sure the internet gambling companies constitute "financial agencies" within the meaning of the statute. Also, there's a question as to whether multiple non willful penalties may be imposed where there are multiple accounts. The IRS obviously believes the answer is yes, but that's not clear.

  9. Yes, that theory of nonwillful penalties of $10,000 per account per year is troubling. Particularly where there are patterns with some immigrants (such as Indian immigrants) having multiple accounts. The downside of exposing themselves to an audit can be potentially more onerous than the willful penalty, although I suspect that in most cases the IRS would not assert the maximum nonwillful penalties under this $10,000 per account per year reading of the statute.

    And, as you correctly state, the IRS's aggressive interpretation has not yet been tested. Caroline Ciraolo, as I recall, has put considerable thought and research into that issue (and every other issue known to mankind), so readers wanting to explore that issue (and the other issues) might contact her.

    Jack Townsend

  10. ....." perhaps for some, details.... of which I am aware might be helpful" ... I could not disagree more.
    The fact patterns that determine "currently" both extremes of NW or willful FBAR penalties or a 3800 Warning Letter are the most important details left for ANYBODY who is involved in this analysis.
    Jack I would strongly advice you to refrain from providing here your personal "teasers" of anecdotal evidence if you cannot share the underlying details. It is counterproductive , of no real value and annoying to say the least !

  11. Hi Jack
    You have kindly listed names of several prominent lawyers (with OVDI expertise) on your website. I assume they have done or currently working on several OVDI opt out cases. Have you gotten any feedback from them regarding how aggressive IRS has been for benign actors who due to ignorance did not file FBARs? The stance IRS had taken was that QDs should not be done and people should go into OVDI program and then opt-out if they feel they do not belong to the program. If IRS is being aggressive on opt-out, then should people trust the IRS any longer when we find that the those who went into the OVDI to do the right thing will possibly bear the brunt of the draconian penalties while thousands of others are still out there with no disclosures (not even QD)?

    Feedback from "OVDI expert" lawyers listed on your website regarding opt out results will be highly appreciated.


  12. Reducing the many problems of current system would make it easier to focus better on the real tax issues. Currently, so much focus is placed on the non-issues, like the local account outside of US jurisdiction, that it is much more difficult to focus on the real problems, such as troublesome offshore accounts. The current system is so heavily burdenous, that the resources needed to improve it are unavailable. Nobody has any time to fixed the flawed system since their time is consumed with wading through its mess, and thus the mess only sprawls out further, sucking up more time.

  13. Since none of these overpaid "expert lawyers" give you any feedback so far with regards to your question may I offer my p.o.v. to you and the readers of this blog.
    Amazing that after the first OVDI in 2009 , over 4 years later according to Horwitz we are still in the early stages of FBAR litigation.
    1. We know that the IRS is not primarily after tax compliance but rather maximizing revenue through imposing FBAR penalties for even clerical errors or FORM CRIME.(lets keep in mind here that it is just an information form)
    2. We know that the examiners have been told to be "aggressive" with regards to the $10K per account and year NW FBAR penalty.
    3. We know that the threshold for being found willful or willful blindness,willful ignorance or conscious avoidance has been continuously lowered over the years .
    4. We know that civil standard for willfulness is satisfied where the individual at
    issue acts “voluntarily in withholding requested information, rather
    than accidentally or uncounsciously.
    Cheek-type standard does apply to the willfulness element of the FBAR civil penalty
    5. We know that the statement " no penalty
    will be asserted if IRS determines that the late filings were due to
    reasonable cause " has been watered down beyond recognition.
    6. We know that the IRS is promulgating useless, theoretical information with regards to their IRMs and FAQs .
    7. We know (so far) the worst willful FBAR penalty was 4 years of 50% (6/30) and second worst was 1 year of 50% of high balance in the highest year.

    Now what does this all mean going forward ?
    With regards to your question about "benign actors" I think one has to expect that compared to "bad actors" the first group will receive the $10K per account pear year penalty as a standard assessment.
    I think that the assessment of what constitutes reasonable cause (outside of OVDI/P) is handled currently on a litigation probability point scale system .
    Like a check list - the good facts and bad facts will be weighted against each other to come up with a probability level and we have to assume that every bad fact carries a much heavier weight than a good fact (see case of Mr. John C. Hom) :

    1. more likely than not to prevail if litigated (quantified as more than 50% likely)

    2. substantial authority (quantified as perhaps 40% likely)

    3. reasonable basis (quantified as perhaps 20 or 25% likely)

    4. frivolous (less than reasonable basis)
    Reasonable cause is a litigating hazard where (i) there is a defense for
    reasonable cause and there are at least marginal facts supporting
    reasonable cause or (ii) there are good facts that might give a fact
    finder reason to hold for the person anyway, even if strictly reasonable
    cause is not present.
    To come back to your question about opt-out results I have to repeat what I said before : it is a turkish bazar .
    The IRS and their examiners have an ever increasing database with cases and their underlying good and bad facts. According to these "Fact finders" assessments are made.
    Now my personal assumption is that > 10,000 benign actors with FBAR penalties < $50K are currently in the system. The problem for them is the cost/benefit analysis of their cases.
    The IRS knows that and has so far no problem with being aggressive . It is also very interesting that so little is being published with regards to those facts,cases and settlements.

  14. Anon, what the IRS does on opt out is so heavily fact dependent that little useful can be stated outside your specific and detailed facts (which just can't be given in blog comments). Nevertheless, I can say that based on my experience, with only a couple of notable exceptions, the IRS has been very reasonable on opt outs.

    If you want more information, I suggest that you talk to a lawyer who can elicit the details of your fact situation and give you reliable advice.

    Jack Townsend


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.