IRS Expands Investigation of Offshore Accounts Beyond Swiss Banks to Israeli, Japanese, and other European Banks

The IRS's 2009 and 2011 Offshore Voluntary Disclosure Initiatives ("OVDI") have been very successful in terms of having taxpayers come forward to report their offshore accounts. One of the reasons so many have come forward is that within the past few years, the IRS and Department of Justice have been unyielding in their enforcement efforts and continue their investigations into non-U.S. banks that assisted U.S. taxpayers in hiding assets from the IRS.

Once the IRS believes that an offshore bank holds unreported accounts for U.S. taxpayers, it can compel the bank to disclose the name of the account holders. In fact, the IRS has either been working with or pursuing enforcement action against, many non-U.S. banks for some time now. These actions are no longer limited to the large Swiss banks, like UBS and Credit Suisse, which are automatically brought to mind when talking about offshore accounts.

While the investigations may have started with the Swiss banks, they have since rapidly expanded. Specifically, Israeli, Japanese, and several other European banks seem to be the IRS's target as of the past year. While many mistakenly believed that the IRS would be reluctant to investigate Israeli banks because of Israel's close association with the U.S., Israel and the U.S. actually have a long-standing cooperative arrangement when it comes to tax matters - one that would encourage cooperation from the Israeli banks.

Some of the banks that are under examination and/or investigation include Bank Leumi and Bank Hapoalim in Israel, HSBC, Bank Julius Baer, Wegelin Bank, Liechtensteinische Landesbank (Liechtenstein). While investigations into these banks have been more public, there are likely many more banks in various other countries under the same scrutiny. Many of these banks are urging their U.S. account-holders to come forward to the IRS before they are forced to turn over the account information. If the IRS receives the information from the bank or from any third party source, the U.S. taxpayer will be precluded from entering into the OVDI.