The United States government continues its aggressive pursuit of taxpayers with unreported offshore income and assets as well as the institutions that facilitate their actions. While the Union Bank of Switzerland (UBS) and other Swiss banks have been the primary target of the U.S. government's investigations to date, efforts are also underway in Luxembourg, India, Israel and the Caribbean. 14 of Switzerland's largest banks remain under ongoing criminal investigation, while Wegelin & Co.s, one of Switzerland's oldest and most prestigious banks, was forced to close its doors.
In its most recent effort, the U.S. has signed a bank information-sharing agreement with Switzerland in which over 100 second tier Swiss banks may turn over U.S. account holder information to the U.S. government in exchange for deferring or avoiding prosecution. A significant component of this deal is that Swiss banks will provide information about so-called "leavers", which are U.S. taxpayers who have shifted assets from one bank to another. This practice has been common among some U.S. taxpayers who attempt to evade detection by moving money and assets from one institution to another.
The primary purpose of the new agreement with Switzerland and the ongoing investigations is to force U.S. taxpayers with unreported foreign income and assets to enter the IRS's voluntary disclosure program. In its current iteration, the Offshore Voluntary Disclosure Program (or "OVDP") offers U.S. taxpayers an opportunity to "come clean", and report all of their unreported foreign income and assets, pay any outstanding taxes and a penalties (currently 20% of the tax deficiency plus 27.5% of the highest balance of the foreign account(s)), and typically avoid criminal prosecution.
The terms of the OVDP are severe. However, the consequences of continuing to evade taxes and not entering the OVDP are significantly more severe, and may include criminal prosecution. Swiss banks only have until December 31 to participate in this program, which means taxpayers considering the OVDP should act quickly.