Tax Evasion In Foreign Banks Could Become Harder For U.S. Customers As Banks Seek To Avoid Liability

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Flickr: AlexiUeltzen
Flickr: AlexiUeltzen

For some foreign banks, enabling tax evasion for wealthy Americans has become more trouble than it's worth.

Some foreign banks have been dispatching letters to their U.S. customers, asking them to sign forms to give away their secrecy rights, waive the banks' legal liabilities and notify the IRS of their accounts, American Banker reports. Some of these letters threaten to close the accounts of U.S. customers if they do not comply.

Tax advisers told American Banker that banks around the world, including in Switzerland, Israel, and Asia, have been sending these letters. For example, BSI, based in Zurich, Switzerland, has sent its U.S. customers forms to sign that would release the bank from legal responsibility, inform the IRS of the existence of the customer's account, allow the bank to report the customer's information to the IRS and let the bank close the bank account if needed.

Foreign banks such as Deutsche Bank, HSBC, and Bank of Singapore are turning away U.S. millionaires because the U.S. government is set to implement the Foreign Account Tax Compliance Act at the beginning of 2013, Bloomberg Businessweek reports. The law will require foreign banks to report information about U.S. customers' accounts to the IRS; if foreign banks do not comply, they will be subject to steep penalties.

The U.S. loses $385 billion to tax evasion every year, the IRS recently told Bloomberg News, and loses more money to tax evasion than any other country in absolute terms, according to a report by the Tax Justice Network cited by the New York Times.

The IRS already has scared some foreign banks with a crackdown on tax evasion through offshore accounts. The U.S. recently indicted three Israeli-American tax preparers for allegedly hiding Americans' assets in two Israeli banks' Switzerland and Luxembourg branches, according to the Wall Street Journal.

Some Swiss bankers are too afraid to go on vacation outside of Switzerland, since they fear getting arrested and extradited, Reuters reported earlier this month. The U.S. is investigating 11 Swiss banks for allegedly enabling tax evasion, and already has indicted four Credit Suisse bankers and sued Wegelin & Co., Switzerland's oldest private bank. Switzerland's finance minister recently said he expects to reach a deal with the U.S. on the investigations before the American presidential election in November.

While ramping up pressure abroad, the IRS has been less than diligent in following up on whistleblower claims related to domestic tax evasion, Bloomberg News recently reported. The agency's whistleblower program "has become the place where allegations of tax avoidance go to die," according to Bloomberg. The IRS has given out only three whistleblower awards since implementing the program in 2006, in spite of receiving more than 1,300 whistleblower claims about tax evasion.

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