Stashing Cash Abroad Just Got Riskier
If the IRS has its way, the term "Swiss bank account" will soon lose its cache.For decades, the availability of foreign tax havens -- which allow U.S. citizens to stash funds in overseas accounts beyond the reach of U.S. authorities -- has been a thorn in the side of the IRS.
If the IRS has its way, the term "Swiss bank account" will soon lose its cache.
For decades, the availability of foreign tax havens -- which allow U.S. citizens to stash funds in overseas accounts beyond the reach of U.S. authorities -- has been a thorn in the side of the IRS. Recently, the agency scored a coup when the U.S. and Switzerland reached a deal under which the Swiss banking giant UBS AG agreed to release the names on about 4,000 Swiss bank accounts that had been kept secret.
Although the U.S. has been pursuing tax havens for years, the pact with the Swiss is a turning point, and will embolden the U.S. to redouble its efforts to pierce the veil of secrecy in many other places, from Andorra to Vanuatu, that provide safe haven for folks trying to hide income. Other countries, such as France and Germany, seeing the U.S. reap billions through its crackdown, will insist on their own tax treaties as well.
Back home in the U.S., the IRS has been operating an amnesty program of sorts: It's telling folks who haven't been reporting income from foreign accounts that they can come in from the cold and avoid criminal prosecution. In return, they must pay taxes and penalties on such income going back six years -- though under this special program, the penalty is smaller than they would pay otherwise. But IRS' largesse won't last forever: The amnesty door is scheduled to slam shut on Sept. 23, after which the agency threatens to throw the book at anyone who it finds sheltering income offshore.
The IRS still has a tough row to hoe, however. Lost in all the headlines over the UBS AG agreement is the fact that the IRS is getting only a fraction of the 52,000 names it had been seeking. The agency is obviously hoping that holders of foreign accounts will be scared enough to take the amnesty deal, but it's entirely possible that many account holders will take their chances and hope that IRS will never find them. After all, why would the IRS bother offering incentives to tax evaders if it was easy to catch them? Keep in mind, too, that although Switzerland is probably the first country that comes to mind as a tax haven, dozens more are still out there with no treaty that reins in their tendencies toward bank account secrecy.
But make no mistake. IRS won't back down. Beyond its concerns over tax fairness, IRS will keep plugging away because it stands to haul in big bucks in back taxes and penalties for the federal government. Congress understands this as well, and will support the IRS to the hilt by giving the agency extra enforcement dollars to keep the crackdown going at full speed. It may take years, but the IRS is intent on winning this battle. So in the end, most folks parking money in overseas accounts probably don't stand a chance.