By Nancy J. Moore

A federal grand jury in New York Jan. 3 indicted three Swiss men working as client advisers to a Swiss bank for helping U.S. taxpayers hide more than $1.2 billion in assets (United States v. Berlinka, S.D.N.Y., No. 12-CR-002,indictment 1/3/12).

Michael Berlinka, Urs Frei, and Roger Keller, along with others not named in the indictment, were charged with conspiracy to defraud the United States, impede the Internal Revenue Service, and evade income taxes.

The case was filed in the U.S. District Court for the Southern District of New York and assigned to Judge Jed Rakoff.

According to the pleadings, the three advisers worked for the Zurich branch of “Swiss Bank A,” which began actively recruiting U.S. customers in 2008 after another bank, UBS AG, lost U.S. accounts due to an IRS investigation and eventual litigation.

Swiss Bank A does not have an office in the United States, and the advisers represented that it would be able to keep account information private under Swiss banking law and would not be subject to the same actions as were taken against UBS, which has U.S. offices.

U.S. taxpayers are required to provide information on any foreign bank account with a value of more than $10,000. They are also required to report all income earned worldwide…

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The Internal Revenue Service’s intense effort to get taxpayers to tell the government about their offshore assets may be running into difficulties even as IRS continues its crackdown on foreign banks that help taxpayers hide those assets, numerous practitioners told BNA in a series of recent interviews.

As the Aug. 31 deadline approaches for participation in IRS’s second initiative to allow taxpayers to voluntarily disclose assets held overseas, the agency said it is seeing progress. But practitioners said many taxpayers are balking—confronted with what they see as a tough penalty structure and the fear that U.S. tax authorities could take up to 25 percent of not only their foreign bank accounts but of related assets, such as real estate and business interests.

“I see clients who are absolutely paralyzed as to what to do,” Mark Matthews, a partner at Morgan, Lewis & Bockius LLP in Washington, D.C., and a former IRS chief of criminal investigations, said in an Aug. 2 interview. “It’s a very difficult conversation. I would like to be able to recommend this program without hesitation, but I find that I have to give a detailed and balanced discussion of all of the legal options available to taxpayers who are now learning of their noncompliance.”

Even though more foreign bank investigations are expected to make headlines in coming months and a new law is taking effect to require overseas banks to report their U.S. accounts, practitioners said significantly fewer taxpayers appear to be willing to participate in IRS’s Offshore Voluntary Compliance Initiative (OVDI) when compared with the 15,000 people who came in under a similar program in 2009.

IRS Official Sees Progress

At the same time, IRS’s Deputy Commissioner for Services and Enforcement Steve Miller said the agency still is encouraged by the response it is seeing.

“We are pleased by the progress we’re seeing with this year’s offshore program,” Miller said Aug. 11 in a statement exclusively provided to BNA. “While it is too early to discuss specific numbers of applications, we are seeing increased interest as the Aug. 31 deadline approaches.”

However, many attorneys interviewed by BNA said the penalty structure under the second program may be causing potential participants to walk away, because it imposes what they view as harsh sanctions on those who may not be the noncompliant tax evaders that IRS is trying to catch. Even though the program offers reduced penalties of 12.5 percent and 5 percent for some, practitioners said those lower rates are only available to limited classes of people.

Taxpayers Discouraged, Matthews Says

“That’s only discouraging people from coming in,” Matthews said. “They designed a program to punish criminals. There is not sufficient leeway or reduced penalties for people who are not criminals and may not owe any taxes or even have known they were out of compliance.”

IRS’s Miller stressed, however, that, “As we developed this initiative, we worked closely with the tax community to develop a fair, workable program that added some important features that were not present in the 2009 agreement. From a fairness standpoint, it was also important for us not to offer a better deal this year than under the 2009 program.”

He said the agency has made international tax enforcement a top priority. “There have been numerous signs of our increased international focus, and we will continue our efforts on multiple fronts going forward,” Miller said…

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Dozens of foreign banks, foreign insurance companies, professional associations including several based in Washington, and other stakeholders around the world are asking the Internal Revenue Service for exceptions and clarifications to broad new reporting and disclosure agreements under the Foreign Account Tax Compliance Act (FATCA).

Stakeholders have requested that IRS trim back the impact of the new law, which requires disclosure of accounts with U.S. owners, in letters spanning four continents, including North America, Europe, Asia, and Australia. The comments came in response to the first major FATCA guidance, Notice 2010-60 (95 BBR 343, 8/31/10)…

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Treasury Secretary Timothy Geithner and European Union Internal Market and Service Commissioner Michel Barnier reaffirmed their commitment Oct. 29 to cooperate on…

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Exactly one year ago, the tax world watched as the Internal Revenue Service conducted what may have been the most extraordinarily…

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The Internal Revenue Service Aug. 27 unveiled eagerly awaited guidance on the implementation of the Foreign Account Tax Compliance Act (FATCA), which imposed a host of new requirements…

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Bending to pressure from the world’s most powerful banks, the Basel Committee on Banking Supervision issues changes to its proposed Basel III capital rules that will result in new parameters for minimum capital set-aside requirements and longer phase-in periods for implementing the changes…

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Federal financial regulators April 30 released interagency guidance on risks posed by correspondent relationships.

Release of the guidance came as authorities in Europe moved toward new efforts to craft a rescue package in response to the turmoil stemming from concerns over Greece’s public debt.

The Federal Deposit Insurance Corporation and the Bank of England have signed a memorandum of understanding on expanded cooperation when the two bodies act as resolution authorities for troubled deposit-taking financial institutions with activities in…

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Expressions of concern over international regulatory harmonization are not new. Speaking at the…

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