As Foreign Banks May Disclose U.S. Depositors, Foreign Account Holders Should Consider IRS OVDI Program

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In December, Bank Leumi le-Israel BM issued a letter notifying its U.S. account holders about the IRS Offshore Voluntary Disclosure Initiative (the OVDI).1 The IRS OVDI is a type of amnesty program under which U.S. citizens and residents are given the opportunity to come clean about their foreign financial accounts. There is speculation that the letter is an indication that Bank Leumi will soon be disclosing a list of U.S. depositors to the IRS as other foreign banks, including most notably the Swiss bank UBS, have done. The IRS has prosecuted a number of U.S. taxpayers for tax evasion based on information received in similar foreign bank disclosures.

A U.S. citizen or resident with foreign financial accounts totaling more than $10,000 in the aggregate during any calendar year must file Form TD 90-22.1 (more commonly known as the “FBAR”) disclosing the accounts by June 30 of the following year. A U.S. citizen or resident who fails to disclose foreign financial accounts can be subject to criminal prosecution if the individual has purposefully evaded U.S. income tax, and may also be subject to substantial civil penalties. For example, the maximum penalty for willfully failing to file a FBAR is the greater of $100,000 or 50 percent of the highest amount in the foreign account during the year for each violation. When an individual has multiple violations over a number of years, the penalty can be greater than the amount of funds in the foreign account.

Under the IRS OVDI program, individuals who make a voluntary disclosure of their foreign accounts and any unreported income related to the accounts generally will avoid criminal prosecution and will be subject to reduced civil penalties.

A U.S. citizen or resident with an undisclosed bank account at Bank Leumi should consider making a disclosure under the IRS amnesty program before his or her name is disclosed to the IRS. An individual is no longer eligible to participate in the program after a foreign bank discloses to the IRS that the individual has a foreign financial account.

Pepper Hamilton’s Tax Practice Group has experience in representing clients in the IRS OVDI amnesty program and can help clients navigate through this comprehensive and complicated disclosure process.

If you have any questions, please contact either of the authors.

Endnotes

1See Tax Notes Today, Israeli Bank’s Letter Seen as Step Toward Turning Over Account Information, 2013 TNT 9-5 (January 14, 2012).

Topics:  Bank Leumi, FBAR, Foreign Banks, IRS, OVDP, Tax Evasion, UBS

Published In: Finance & Banking Updates, International Trade Updates, Tax Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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