TAXLITIGATOR – Tax Controversy (Civil & Criminal) Report

The Permanent Subcommittee on Investigations (PSI) of the United States Senate will hold a hearing, “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts,” on Wednesday, February 26, 2014, beginning at 9:30 a.m., in Room G-50 of the Dirksen Senate Office Building. See http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-tax-evasion-the-effort-to-collect-unpaid-taxes-on-billions-in-hidden-offshore-accounts

The PSI is the chief investigative subcommittee of the Senate Homeland Security and Governmental Affairs Committee (formerly the Governmental Affairs Committee) and has the jurisdiction to conduct investigations into a broad range of issues, including federal waste, fraud and abuse, corporate crime, offshore banking and tax practices, energy markets, corruption, and national security. Senator Carl Levin of Michigan is the Chairman of the PSI and Senator John McCain of Arizona is the Ranking Minority Member of the PSI.

The PSI hearing on February 26 is for the stated purpose of continuing the PSI’s examination of tax haven bank facilitation of U.S. tax evasion, focusing on the status of efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on billions of dollars in hidden assets. Witnesses include representatives from Credit Suisse Group AG, Credit Suisse AG (Credit Suisse) and the U.S. Department of Justice.

Those called to testify at the hearing include the CEO of Credit Suisse in New York; the General Counsel of Credit Suisse in Zurich, Switzerland; the Co-Head, Swiss Private Banking and Wealth Management, CEO – Region Switzerland at Credit Suisse in Zurich, Switzerland; and the Co-Head, Swiss Private Banking and Wealth Management, CEO – Region Americas at Credit Suisse in New York. From the U.S. Department of Justice, witnesses will include the Honorable James M. Cole, Deputy Attorney General – Office of the Attorney General, U.S. Department of Justice, Washington, DC and the Honorable Kathryn M. Keneally, Assistant Attorney General – Tax Division, U.S. Department of Justice, Washington, DC.

The Department of Justice and the Internal Revenue Service have been aggressively engaged in initiatives and programs seeking to identify accountholders having undisclosed interests in foreign financial accounts and assets. On August 29, 2013, the Department of Justice announced an unprecedented initiative to encourage Swiss banks to cooperate in the Department’s ongoing investigations of the use of foreign bank accounts to commit tax evasion. The Department also released a joint statement with the Swiss Federal Department of Finance, stating that Switzerland would encourage its banks to participate in the initiative. The initiative bypassed the need for Swiss parliamentary approval, a significant point in accelerating implementation of ongoing, aggressive efforts by the Department to obtain information regarding U.S. accountholders.

Under the Swiss bank initiative, which is available only to banks that are not currently under criminal investigation by the Department for their offshore activities, participating Swiss banks are required to pay substantial penalties; make a complete disclosure of their cross-border activities; provide detailed information on an account-by-account basis for accounts in which U.S. taxpayers have a direct or indirect interest; cooperate in treaty requests for account information; provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; agree to close accounts of account holders who fail to come into compliance with U.S. reporting obligations. Swiss banks meeting all of the above requirements are eligible for non-prosecution agreements. The approximately 14 Swiss banks currently under criminal investigation related to their Swiss banking activities on behalf of U.S. accountholders, and all individuals, have been expressly excluded from the initiative.

To obtain a non-prosecution agreement, a Swiss bank must pay 20 percent of the value of accounts not disclosed to the IRS on August 2008, 30 percent for those accounts opened between then and February 2009 and 50 percent for accounts opened since that date. The banks’ receive a credit against their penalty for each U.S. accountholder who participates in the ongoing IRS Offshore Voluntary Disclosure program (OVDP) before the bank discloses their names to the IRS. According to Kathryn M. Keneally, Assistant Attorney General for the Tax Division, approximately 106 of more than 300 potentially eligible Swiss banks contacted the U.S. government by December 31, 2013 seeking such non-prosecution agreements. In recent speeches, Assistant Attorney General Keneally has  stated that the efforts of the Department in this arena extend far beyond the borders of Switzerland and has indicated that they are receiving information regarding activities of U.S. accountholders from throughout the world.

Participating Swiss banks have been sending letters to their U.S. accountholders strongly encouraging them to immediately come into compliance with all foreign account related filing and reporting obligations.

Since last year, as a direct result of the Department’s Swiss bank initiative, U.S. tax practitioners have experienced a notable and significant increase in contacts from current and former foreign accountholders desiring to enter the IRS OVDP.

Substantially all of these accountholders have already been educated about the OVDP as a result of letters generated from their foreign financial institutions. These letters further indicate that the institutions are about to disclose accountholder information to the U.S. government in accordance with the Swiss bank initiative. The vast majority of these accountholders express an extreme degree of urgency about getting into the OVDP immediately.

Accountholders with current or former interests in non-Swiss financial accounts are similarly reaching out for advice about the IRS OVDP and methods of coming into compliance with their U.S. reporting and filing obligations. There is a belief that the Department of Justice success in cracking open Swiss bank secrecy will spread to other countries throughout the world and that many of these countries may simply disclose the information without attempting to negotiate an arrangement similar to the present Swiss bank initiative with the Department of Justice. In short, the Department has successfully gained the attention of U.S. individuals located throughout the world who believe their information will find its way to the U.S. government.

Wednesday should be an interesting day for Credit Suisse . . . and possibly others.