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December 9, 2013 - Phil Hodgen

Voluntary Disclosure and Frozen Swiss Bank Accounts

I have been long silent on this topic but for those of you who need the information, here it is.

Folding

The Swiss government and banks are folding like a bunch of cheap patio chairs. Banks have started and will continue to hand over over information about their U.S. customers to the IRS. Expect this to continue, and expect the contagion to spread to other countries.

That’s not news.

Freezing

Some Swiss banks are now freezing 50% of the account balance of their American customers until the customers give proof that they have solved their U.S. tax problems.

I don’t see people talking about this too much. You need to know this is happening.

Let it roll around in your brain for a moment. Swiss banks are arbitrarily freezing half of their customers’ accounts, leaving the customers with a tough choice: enter the voluntary disclosure program or kiss their money goodbye. This tilts the legal strategy calculus dramatically.

Suggestion

My professional advice to you is “Don’t f___ around.” Make a decision on what to do. Make the decision fast. If you get to the point where your Swiss banker tells you that half the account is frozen, you have probably waited too long.

This more or less forces you into the voluntary disclosure program. That might be the right move for you or it might not. But your options are narrowing.

Why I Have Been Silent on OVDI

I have been silent because our office burned out on voluntary disclosure program cases. We no longer do them. We have one case lingering from the 2009 program, and that’s it. That one should be finished pretty soon.

So I’m not looking for new business here. If you want help, let me know and I will be happy to help you make a connection to someone. Ping me an email. I want you to be able to sleep well at night.

It’s Not Rocket Science

But really, a voluntary disclosure case is commodity legal work and takes relatively little skill. There are very few moving parts, and you can buy this service almost anywhere. (Well, don’t turn off your brain when you do this, but the basic idea still stands. You don’t need a rocket scientist tax lawyer.)

When I turn off Adblock I see that lawyers are buying advertising from Google, FFS. When a legal service is sold through Google AdWords, that’s when you know it is a commodity.

Except When It Is

Some of you out there do have tough facts. It’s hard to make a decision about what to do. Well, I should say it is easy to make the reflexive decision to use the voluntary disclosure program.

But if you are at all thoughtful and if you refuse to take government PR as the gospel, there is a judgment call to be made: use the voluntary disclosure program or find another method to solve the problem.

Criminal Prosecution

Frankly, in the vast, vast majority of situations the likelihood of criminal prosecution is nil. If you are talking to a lawyer about your situation and you are getting a steady diet of “Prison!” and “Fear!” you should ask for damned good reasons. And expect a couple of decades of experience in criminal tax defense to back up those reasons.

I am not saying there is a zero risk. Each case is different. I’m just saying that unless you are Dr. Evil Incarnate and big money is involved, you should assess your risks dispassionately and with the help of an experienced professional.

Tax cases are either money problems, or money + prison problems. I am telling you that very few tax cases are prison problems.

It’s a Money Problem

Most of these cases come down to money–minimizing the penalty risks and doing the tax returns right to minimize tax. Analyze your situation by looking at every possible strategy–even the dumb ones. What is the expected economic outcome of each alternative strategy? Assuming that prison risks are off the table, you are making a “minimize my expense” decision.

Well, that’s not strictly true. You have a money problem and an emotional problem. Some strategies for cleaning up your messes will have uncertainty built into them. If you can’t stomach the uncertainties, you should throw more money at the situation until you have certainty. And that usually means the voluntary disclosure program–this is the only way to buy immediate closure.

What We Do Now

As I said, we don’t do voluntary disclosure program cases anymore. We got sick of putting grandmothers on the government’s conveyor belt to oblivion.

But we haven’t walked away entirely from helping people who find themselves in a jackpot. We have taken a slightly different role in the process: we are the back office team.

Now we work with criminal tax defense lawyers on messy, problematic, high-stakes cases. You hire a criminal tax defense lawyer (I know who you should call) to deal head-on with the government. You want someone who is in semi-constant contact with the Department of Justice. Strategies are decided here.

We do the hard technical tax analysis and prepare the tax returns. Your tax returns will get looked at. The best thing you can do for yourself is to have those tax returns get a hostile audit and come back with a “no change” result. That gives your defense lawyer the best leverage for negotiating a favorable result.

That’s what we do now. It is the combination of experienced international tax lawyers and three in-house CPAs that makes the difference. We can (and do) have three, four or five of our people at projects for months at a time. They have had experience in dozens of cases just like yours. That’s power.

Tax returns are how you talk to the government about money. I don’t know anywhere else that combines the skill-sets of forensic accounting, tax accounting, tax return preparation, and hard-core international tax expertise to make those tax returns deliver the right message.

And you know what? We’re having fun with it.

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