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Switzerland Agrees to FATCA, Ending Era of Strict Banking Privacy

The United States and Switzerland have signed an accord that, assuming the accord is approved by the Swiss parliament, will lead to the adoption of striking new obligations in the operation of Swiss banks and financial institutions, including some collective investment vehicles. These financial institutions will, in certain circumstances, be required to reveal American account holders to the U.S. government and to help the U.S. collect unpaid taxes and penalties.

If you have foreign bank accounts totaling $50,000 or more and don't already know about the Foreign Account Tax Compliance Act, you need to find out now. Starting this year for most affected taxpayers, FATCA requires all U.S. taxpayers with foreign financial assets of that aggregate size to attach new disclosure forms to their tax returns. This is on top of the U.S. Treasury's Report of Foreign Bank and Financial Accounts (FBAR) form, TD F 90-22.1. Failure to file the FATCA form will result in a $10,000 penalty -- along with an understatement penalty of 40 percent on any resulting unpaid taxes.

In addition to that individual reporting requirement, FATCA aims to require foreign financial institutions, or FFIs, to report certain information to U.S. authorities. Switzerland is the eighth nation to agree to adopt FATCA.

FATCA requires due diligence by Swiss FFIs to identify their American clients and report them to U.S. authorities as requested. Second, if U.S. authorities deem a taxpayer has noncompliant with FATCA's individual reporting requirement, Swiss FFIs will be required to disgorge to the U.S. 30 percent of any payments or transfers from that taxpayer's account.

Excluded from the FATCA FFI reporting requirements are:

  • Social Security funds, private pension funds and property and casualty insurers
  • Financial institutions and collective investment vehicles whose clientele is at least 98 percent Swiss or EU citizens (these are deemed FATCA compliant if they meet certain conditions)

Swiss financial institutions will disclose information to the IRS only with the consent of individual account holders or in response to group requests made through FATCA's administrative process. They will not automatically disclose information, nor do so outside the requirements of FATCA.

As it stands, taxpayers with offshore accounts should be cautious and take advantage of the IRS's voluntary disclosure programs. FFIs are to file their first FATCA disclosure reports on Sept. 30, 2014.

Our law firm counsels U.S. taxpayers on offshore banking issues, including FATCA and FBAR disclosures, and can assist them with the of IRS Offshore Voluntary Disclosure Program. We also defend taxpayers accused of failure to file tax returns, tax evasion, or other tax offenses including failure to file FBARS and other documents required by the Foreign Account Tax Compliance Act.

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