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Scott Michel Speaks with Bloomberg on DOJ's Tax Deal with Swiss Banks to Reveal U.S. Account Information

August 30, 2013, Bloomberg BNA's Daily Tax Report

Bloomberg BNA's Daily Tax Report discusses with  Scott D. Michel the Justice Department's new voluntary disclosure program which encourages Swiss banks to cooperate in the DOJ's ongoing investigations of the use of foreign bank accounts to commit tax evasion.  To read the full article, please visit BNA's website (subscription required).

Excerpt taken from the article.

Scott Michel, a member of Caplin & Drysdale, Chartered, in Washington, called the program an "extraordinary development"—one that would be attractive to Swiss financial institutions and result in large amounts of information being turned over to U.S. tax authorities.

‘Leavers' Targeted
Specifically, he said, the program is focused on tracking down what he called "leavers," or U.S. people who moved their accounts from one bank to the next in the effort to evade taxes.

"Banks will have to identify other financial institutions from which accounts were transferred or to which they went upon closure," he said, adding that this could create "a circular firing squad." If one bank has to identify another, "it's in the second bank's interest to participate. It's clear that banks here will be making all kinds of disclosures as to the names of independent third parties affiliated with the accounts as well as their own employees," Michel told BNA Aug. 29.

Multiple Penalties
Speaking to BNA Aug. 29 about the new U.S.-Swiss program, Michel stressed that the government's intent is to find taxpayers that have moved from one bank to another. He said it is possible that multiple banks will be paying penalties on the same account or funds, if those accounts were transferred from one participating bank to another.

He said the program is interesting because it incorporates several components that originated under the Foreign Account Tax Compliance Act. That 2010 law requires foreign financial institutions to report their U.S.-owned accounts to the U.S. Internal Revenue Service or else pay a 30 percent withholding tax on certain U.S.-source payments.

Since FATCA was enacted, Switzerland has signed a so-called intergovernmental agreement (IGA), which allows banks to share the account information with the Swiss government, which then would transmit it to U.S. tax authorities.

The program announced Aug. 29 "turns that IGA into a broader, more retrospective set of understandings between the two countries to resolve the past issues, not just set in place a disclosure regime for going forward," Michel told BNA.

Swift Action Urged
However, "if a bank decides to participate in this program, it is taking on responsibilities that go beyond the terms of the US-Swiss IGA under FATCA," Michel said.

He said banks should not wait to participate. "Since the program deadline is Dec. 31, it strikes me as being foolhardy for a given bank to wait to see if it would be identified by another participating institution," Michel said.

He noted that banks can get penalties reduced for clients who enter the IRS's offshore voluntary disclosure initiative (OVDI). This allows taxpayers to reveal their offshore assets in return for a set penalty structure and the chance to avoid criminal prosecution.

"We would expect that they will at least try very hard to get their existing or former U.S. account holders to make that decision," he said.


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