The Death of Swiss Bank Accounts

The term Swiss bank account conjures up visions of wealthy individuals stashing cash where no one would know about it. Things have changed with the recent signing of an agreement of cooperation between Switzerland and the United States.

Under the agreement, starting on January 1, 2014, Swiss financial institutions must register with the IRS and comply with reporting and withholding rules applicable to foreign financial institutions (FFIs). They must request from each account holder identified as a U.S. account (one held by 1 or more U.S. persons) the appropriate tax identification number of the holder. Swiss FFIs must start certain reporting in 2015.

Even without this agreement, which helps the IRS with compliance on reporting of income from Swiss accounts, U.S. citizens and residents are already required to report their worldwide income, including amounts from these accounts. Reporting includes:

• FATCA reporting: Completing Form 8938 to report certain foreign assets (there is an income threshold for this reporting) and attaching it to Form 1040.
• FBAR reporting: Completing Form TD F 90-22.1 to report certain foreign financial accounts and filing it with the Treasury by June 30 each year (it is not part of income tax filing).

Whether the new agreement will lead to more transparency on foreign holdings and, in turn, more reporting of foreign income, remains to be seen.