In recent months, at least one Swiss bank has sent letters notifying its U.S. customers that the Internal Revenue Service has submitted a request to the Swiss Federal Tax Administration (SFTA) seeking account records pursuant to a 1996 Convention between the United States and Switzerland. Those letters further notify the recipients that, while they will have the right to appeal any decision by SFTA authorizing disclosure of their account records, under U.S. law, they will have to provide a copy of the papers filed in Switzerland to the U.S. Department of Justice.

This requirement, which appears in 18 U.S.C. §3506, was adopted as a means of preventing targets and defendants from using overseas litigation to thwart criminal prosecution in the United States. Unlike other cases where it comes into play, however, compliance with §3506 in the context of a previously undisclosed offshore account will provide the government with the very information being sought: the accountholder’s identity. As a result, taxpayers subject to potential disclosure of their accounts face three problematic choices: forgoing litigation in Switzerland; complying with §3506, thereby rendering their appeals moot, or violating their obligation to notify the Justice Department of their appeals. Through its recent pronouncements, the Justice Department has suggested that taxpayers—and their advisers—choose the third course at their peril.

Section 3506

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