A Taxing Matter has reported frequently on the scandals of offshore banks aiding and abetting US taxpayers in avoiding tax due on income from their capital held overseas. The opening of the UBS case cracked open a vast network of mostly wealthy US taxpayers who had held money overseas and avoided tax. With the exposure of the bank's role in assisting tax avoidance, and the requirement that taxpayers "come clean" about the particular bankers and banks that assisted them, the government began to create a web of information leading to tax evaders, even those who thought they had moved Swiss accounts to Liechtenstein banks to avoid capture. That web has already led to the demise of one of the oldest Swiss banks--Wegelin. See Robert Wood, FATCA Cliff: Tax Evasion Guilty Plea and Death for Oldest Swiss Bank, Forbes.com (Jan 3. 2013); Swiss Bank's Demise: Glass Half Empty or Half Full?, Jan 9, 2013.
The IRS offered a number of voluntary disclosure programs with slightly escalating penalties but, importantly, no criminal prosecution, for people who would come forward before their names/accounts turned up in the ongoing chase after tax avoiders. (There is considerable suspicion that one of the reasons Mitt Romney refused to release the usual number of tax returns is that he may well have been a participant in that voluntary disclosure program.)
For those who don't come forward soon enough and are caught by the IRS, the statutory penalties and potential for criminal punishment are very real. The statute in effect allows the government to collect amounts that could well exceed the amount left in the account, and criminal punishment for filing falsified tax returns can well mean jail time.
Mary Estelle Curran fell into that trap when she choose not to report the Swiss accounts her husband had established after he died, from 2001 through 2007, using foundations in Liechtenstein and Panama. By the time she tried to participate in the voluntary disclosure program, it was too late, because she was one of the Americans revealed by UBS in its deal to defer US prosecution. The taxes she evaded amounted to about $667,000, but the penalty under the law for this type of willful evasion is quite severe, allowing the government to take 50% of the highest account balance for each failure to report. Forbes notes that "[b]y 2007, the accounts totaled over $42 million. Her penalty? 50% of the highest balance: $21,666,929, and that’s not all. She has not yet been sentenced but faces a potential prison term up to six years." Florida Widow Guilty + $21M penalty for Inherited Swiss + Liechtenstein Accounts, Forbes.com (Jan. 8, 2013).
The crackdown has led to charges or indictments for "more than four dozen American clients of Swiss and Swiss-style banks." Mary Estelle Curran, 79-year-old ex-UBS client, facing 6 years in prison over tax evasion, HuffPost (Jan 8, 2013).
The moral of this tale--if you have money sequestered offshore on which you haven't filed the required FBAR reports or paid taxes, you'd better 'fess up before you get discovered in this continuing sweep. And next time, go on and pay your fair share. You really owe those taxes, you know.....