New OVDP Penalties

U.S. citizens who have not filed an annual IRS Form 8983 and an annual Report of Foreign Bank and Financial Accounts (FBAR) may face criminal prosecution, as well as large civil fines. Participation in an Offshore Voluntary Disclosure Program (OVDP) can limit the fines and penalties. However, there is a list of “bad banks” and investors with those accounts may end up paying more.

The list of bad banks is growing.  If your bank is not yet on the list, now may be the best time to act to become part of the OVDP program. For investors whose banks are already on the list, coming forward may still be a smart choice because penalties for nondisclosure of foreign accounts can be much worse if the IRS finds you before you voluntarily disclose.

A Boston tax evasion lawyer can assist in determining if you can participate in the OVDP and will help you explore strategies to minimize penalties you face for not disclosing your offshore investments. Call as soon as possible for help if you have undeclared offshore funds.

Another Bank Added to the “Bad Banks” List

Participation in the Offshore voluntary Disclosure Program allows you to avoid criminal penalties for not filing FBARs and reporting offshore accounts. If you qualify for the OVDP, you generally face civil penalties of 27.5 percent of the value of the undeclared offshore accounts. However, if your account is held at one of the financial institutions on the “bad banks” list, then you could face penalties of up to 50 percent of the account value with participation in the OVDP. 

The banks on this list include:

1. UBS AG
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
3. Wegelin & Co.
4. Liechtensteinische Landesbank AG
5. Zurcher Kantonalbank
6. Swisspartners Investment Network AG, Swisspartners Wealth Management AG, Swisspartners Insurance Company SPC Ltd., and Swisspartners Versicherung AG
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates
11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates
12. Bank Leumi le-Israel B.M., the Bank Leumi le-Israel Trust Company Ltd., Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA

Bank Leumi was only recently added to this list after the Israeli-based financial institution entered into a $400 million settlement for facilitating tax evasion.  Those who submit pre-clearance requests for OVDP participation after December 22, 2014, will face the higher penalties for Bank Leumi accounts.

For the first 10 banks on the list, account holders face the higher penalties for pre-clearance requests submitted on or after August 4, 2014. For investors with accounts at Sovereign Management, higher penalties go into effect for investors with pre-clearance requests submitted after December 19, 2014.

The 50 percent penalty may seem harsh. However, those who are not part of OVDP can face even worse consequences. Aside from the risk of criminal charges, there are civil penalties assessed for each instance where disclosures were not made.

The civil penalties are equal to the greater of 50 percent of the account value or $100,000. This means someone who failed to file an FBAR for multiple years could face penalties for each year that he had not filed. One investor recently had to pay penalties equaling 150 percent of his account, losing the entire value of the account and then some.

With more and more banks turning over investor information as part of settlements, it will become harder for investors to continue hiding. It is best to act before your bank is on the bad banks list, if possible. If it is already too late, you still should think seriously about coming forward before the IRS finds you. Kevin Thorn, a tax evasion lawyer, will advise you on whether participation in OVDP is right for you and can assist you in dealing with your tax problems with the IRS.

For a consultation, contact Kevin E. Thorn, Managing Partner, at ket@thornlawgroup.com or (617) 692-2989