As many tax controversy practitioners have learned since the advent of the first IRS Offshore Voluntary Disclosure Program (OVDP), some cases just won't die, even since the OVDP's sunset in 2018. Some cases turned out to be very complex, other cases involved long tortuous procedures to obtain the account records needed to prepare FBARs and amended returns, others required legal or administrative proceedings in foreign jurisdictions in order to pierce foreign corporate veils or unwind sham trusts and foundations, while some cases simply involved overwhelmed revenue agents (and attorneys) inundated with hundreds of OVDP matters.
A less common issue is when you (and the taxpayer) understand and believe an OVDP case to be long resolved, only to learn—years later—that the client's “old” foreign bank account actually remained open for years after the foreign bank was notified that the client was participating in the OVDP, after the funds in the foreign account were repatriated to accounts in the United States, and even after the client and the IRS entered into a OVDP closing agreement. And, in the case described below, long after the client instructed the foreign bank at issue to close his account.
This situation emerged recently when a former client reached out to me to review correspondence from his “old” Swiss bank. Despite having resolved his OVDP case 4 years earlier, the bank sent the client a generic letter advising him that his former account manager had left the bank and introducing him to a new account manager, who the client was encouraged to contact to review his portfolio and discuss some exciting new investment ideas and products. The client assumed that the letter was a mistake. In an abundance of caution, however, we reached out to the attorneys who had represented the bank in connection with the bank's own voluntary disclosure (pursuant to DOJ's Swiss Bank Program). The bank's lawyers were easy to identify, as DOJ published its non-target and non-prosecution agreements with dozens of Swiss financial institutions on its website (see https://www.justice.gov/tax/swiss-bank-program).
Sure enough, the bank's attorneys responded that, despite the client's unambiguous directives almost five years earlier, the bank never actually formally closed the client's account. Worse yet, the account remained open in the name of the same BVI nominee corporation that the bank had used to open the account when the client had first become a customer over 20 years ago.
We worked with the bank's counsel to have the client's account officially closed. But it was not a straightforward or inexpensive process and required a total of six formal written demands, countless emails and telephone calls, a stack of legal releases and other forms absolving the bank of any responsibility, written evidence of the client's successful completion of the OVDP, a waiver of any future interest in a worthless Madoff feeder fund that the account had at one point invested in, and, ultimately, a threat to report the situation to the DOJ attorneys who had approved the bank's settlement in the Swiss Bank Program, before the bank was finally willing to provide the client with written assurance that his old Swiss account did not, in fact, exist anymore.
This was not just an annoying assignment. Despite successfully completing the OVDP, the bank's failure to wind up the BVI company and shut down the bank account exposed the client to several potential penalties, including for failure to file Forms 5471 and 8938, and, because the Madoff fund position may have technically had some value in excess of $10,000, for failure to file FinCEN Forms 114 (aka FBARs). Of course, it is likely that had the client been audited by IRS in connection with the foreign account penalties would have been avoided for reasonable cause, it would have nevertheless been a costly and time-consuming matter.
The takeaway is: OVDP cases never seem to totally fade away and it should not be assumed that simply because a taxpayer successfully completed the OVDP and repatriated funds back to the United States it means that the taxpayer's name is not somehow still associated with an open bank account on the books of his or her “old” Swiss bank. Practitioners with a stable of closed OVDP cases may want to get final confirmation from the clients' banks that their accounts were actually closed.