Switzerland Shares UBS Client List with France – IRS Audit Risk?
How can a recent court ruling in Switzerland lead to an IRS Audit or Offshore Penalties being issued by the Internal Revenue Service, and put U.S. Persons at risk?
In Switzerland, the justices recently decided that UBS is entitled to provide the French government with French account holder client information — which was previously thought to be confidential.
Simple. So that France can assess any non-disclosure issues for French Nationals in accordance with French bank account reporting laws.
On first glance, this does not appear to impact U.S.persons directly. Especially, since this specifically relates to individuals from France who have accounts at UBS Switzerland.
But, for many U.S. investors in France or Switzerland, this may have a significant IRS impact.
Example of Swiss & France IRS Impact
Here is a common situation we deal with often: Peter is a legal permanent resident in the United States, and a citizen of France. Many years ago before he became a U.S. person, Peter opened up a UBS account. Not a big deal from a U.S. tax perspective, since Peter did not have U.S. Person status.
Filing U.S. Tax Returns
Peter files U.S. tax returns each year, but was unaware that he was required to report foreign accounts. His understanding was that, since none of the money was ever transferred to the United States, he was not any risk.
A few years later, Peter learns that he was required to have reported his foreign accounts on his tax return and FBARs (which he never filed).
Peter is Not Sure he Wants to Get IRS Compliant
Peter decides that he’s not going to enter the IRS amnesty program, and just let it ride. The majority of Peter’s foreign money is in the UBS account in Switzerland. And, at the time Peter opened the Swiss account, he was a French citizen with no U.S. status.
Moreover, UBS does not have his U.S. address, and does not have knowledge of his U.S. status.
Finally, Peter is unsure how long he will maintain his U.S. status anyway.
Here is the IRS Audit Risk Problem
Once Peter relocated to the United States, he updated his French bank in response to a FATCA Letter — and thought nothing of it.
At that time, he was just updating the bank to make sure they knew where to find him if they had any questions about his accounts, and/or to explain why he was transferring money from the U.S. to his French accounts (it was Peter’s account he used in the U.S., which he then transferred to his French accounts).
Peter never updated UBS, because they never contacted him, and he never thought it was at issue.
They did not know Peter was a U.S. person so they never sent him a FATCA Letter, or FATCA Package.
UBS Reports Peter’s Swiss Account to France
Peter’s bank in France receives information regarding the UBS account. Two major problems can occur:
France & U.S. FATCA Agreement
The bank in France reports Peter to the IRS, (since Peter is a U.S. account holder) and includes the information about UBS.
UBS Deferred Prosecution Agreement with the DOJ (U.S.)
UBS received notice from the French bank that Peter is a U.S. person. Therefore, in accordance with the deferred prosecution agreement that UBS entered into with the United States, UBS sends the information about Peter’s account history to the IRS.
Serious U.S. Tax Repercussions
There are multiple serious potential issues for Peter as a result of this situation:
- The IRS gets wind of peters situation and issues in audit/examination notice. As a result, Peter is disqualified from submitting to IRS tax amnesty/voluntary disclosure.
- The IRS launches a special agent investigation to dig deeper into Peter’s finances.
- The IRS refers the matter to the Department of Justice for its own investigation.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.