This is a long story that I am going to make short. There are, some say, 6 million US citizens abroad. Most do not file US tax returns; aside from the FBAR, Form 3520 and Form 5471 penalties (themselves now draconian), few have any liability to tax or need to file. And few do, although the published info is dated: http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-106

A few thousand of the nonfilers are Swiss. The US Government does not know who all its citizens are (offspring of Americans abroad, even assuming an American parent has the requisite prior residence in the USA, are unknown to State and Treasury unless they seek a passport; many just use their Swiss passport and never claim US citizenship (although they are in fact Americans and are violating the law visiting the US with a Swiss passport). The IRS does not, in fact, pursue anyone who has never claimed or used an "attribute" of US nationality.

It is a general principle of law that a dual national is deemed, in either (or any) of his countries of nationality solely a national of the country (from among his nationalities) in which he is located. So it's improbable the Swiss Government would help the IRS to enforce its long-arm statutes against a Swiss-American in Switzerland.

There are terms in some treaties that suggest the host government would assist the IRS with information and, in a few cases (especially Canada) collection. But even in the Canadian-US Protocol there is an exception for someone who has the nationality of the State from which help is requested.

I was attracted to this question from forum postings elsewhere. And the number of US-Swiss dual nationals is not so great as it once was, and certainly can't approach the number of Mexicans, Canadians and British who also have American citizenship.

As I see it, the greatest risk for a Swiss-American is at death: that (especially given Swiss forced heirship rules) an American resident might inherit, and the IRS would then (from reporting requirements if for no other reason) become aware of the issue, and use the principle of transferee liability to seize assets sent to the US or available to a US person.

It's true that crimes of the decedent are not attributable to the heir (and the European Court of Human Rights ruled against Switzerland when it tried to apply a financial penalty to an heir: Case of A.P., M.P. and T.P. v. Switzerland). But as far as I know in the USA that is still possible, up to the value of the inheritance.

Given the UBS catastrophe one has to think more about these issues: among the 4,500 or so names in the UBS list could any be dual nationals? Indeed would UBS be aware of a dual national if that person was resident in Switzerland? I've discussed this with cantonal and private bankers who say they are just glad their banks have no offices in the USA.

I'm not expecting answers: even the professionals have none to offer. But I think it worthwhile, given the increasingly xenophobic and hostile attitude of the US fiscal authorities to anything foreign, that some limits are recognised and, perhaps, imposed. Normally (in the case of the UK and Switzerland certainly) dual liability for tax is a result of a conscious act or facts of doing business. Rarely are they an unexpected or undesired effect of facts of birth. The IRS enforcement and criminal investigation rules seem to recognise the limits of sovereignty. Google, for example <prosecution site:irs.gov>

Few people are in the ranks of Marc Rich. But not a few will have learned from his experience. He needed the pardon not to avoid taxes (which he still owes) or even state prosecution (New York is still after him) but to avoid extradition for non-tax offences, especially his criminal evasion of Iran sanctions during the hostage crisis. (It's remarkable that Bill Clinton pardoned him under the circumstances, but that's another matter alien to this posting.)

I've meet over the years a few Swiss who for one reason or another had dual USA/CH citizenship and were never aware that they had a tax obligation to the USA. The ones I meet or had heard about were in their mid 40's to mid 50's and because of the press UBS has gotten its come to their attention that they as well should have been filing USA tax returns and now they're scared to death as how to proceed. One fellow I spoke with was thinking about maybe retiring in the States one day but wanted to get this cleared up first.

Questions I've been asked (for which I have no idea how to answer) from various sources are:

1. Do they need to go back and file tax returns now for the last 20 or 30 years..?!

2. Who in Switzerland (at least the German speaking part) does such catch-up income tax work..?

3. If over the allowed income deduction amount will there be fines on back taxes owed..?

The IRS generally does not want returns filed for more than the last six years. The statute of limitations is usually 3 or 6 years, there is no limitation in nonfiling and nonreporting (FBAR (bank accounts), 5471 (foreign companies), 3520 (trusts)) cases, but even so 6 years is the general rule absent special circumstances.

That "catch-up" work is done mainly via expensive accountants PWC etc, who hire even more expensive international law firms. There are various lawyers who advertise on the Internet. You take your chance hiring anybody on the Internet.

The deadline for the amnesties has passed. It is my opinion that dual citizens, nonresident in the USA, will get sensitive treatment, especially if the deal is worked out with the IRS rep in Paris who would be far more intelligent and experienced than the enforcement officials stateside. The IRS has zero compliance power over a Swiss with no assets in the USA.

Every case needs to be considered on its particular circumstances, including the status of likely heirs. I do not seek, and generally don't accept, referrals from the Internet. But if you want to send a private message I will at least discuss the matter. FWIW I am Swiss-American, French speaking. My German is schoolboy-ish unfortunately. Especially since my Zürich grandfather, an actor, told jokes on the stage in six different languages all over Europe.

(On your final question, Swiss taxes may exceed US taxes, depending on type of income. But wealth tax is not subject to credit, and Swiss capital gains tax is usually less than the present 15% (past and future 20%) in the USA. If there is no net tax due there is no penalty for nonfiling. The problem then is the nonreporting of accounts over $10,000, etc.)

My CPA worked for IRS many years ago...he has extensive international tax experience and is reasonably priced...has saved me tons of money over the years...also got me out of some money I owed...PM me if you want a US based CPA. He lives in Chicago.

A CPA can be helpful. But for anonymous contact with the IRS to test the waters and see how they may respond to a specific set of facts, one should use a lawyer admitted to the Bar in a US state or territory. If I contact the IRS there is lawyer-client privilege. If the CPA works for me and not the client, then that is part of my work-product and also privileged. What is not privileged is if I instruct a client on "how to engage in tax fraud without getting caught" -- in other words how to commit a crime. I can tell the client what the law is. And the client can do what he decides to do based on knowledge of the law.

So if a lawyer calls the IRS and sets out facts and gets an answer the client doesn't like, the client is in principle no worse off than before: one assumes that all lawyers are smart enough to conceal identifying facts. A CPA's direct client is not so protected. Especially a CPA located in the USA whose books can be subpoenaed. A Swiss accountant's books are probably safe from examination by the IRS, absent grounds for the Swiss Government to cooperate in a tax fraud case. Nonfiling (without more) is generally not deemed tax fraud in Swiss law.

There are lawyer-CPAs, licensed in both capacities. They tend not to be all that expensive in fact, since they are often sole practitioners or working in small firms. Normally, however, there is a relatively clear division of work between the two.

My most recent case -- one in which I did not however get paid since unlike most lawyers I seem to tell clients that litigation (or my particular field, conflict of laws, especially in tax) is unwise or not relevant -- concerned a tax-shy parent who had set up a Liechtenstein Stiftung and never filed a return and lived in Europe the rest of his days. His four children did not get along and, not untypically, two of them felt entitled to more than their share of the assets. But before they could get anything a settlement had to be worked out with the IRS. I understand that after fairly large payments to PWC and the Paris office of a large US law firm, some millions of dollars were disengaged and some but not all of that paid to the IRS.

interesting info..thanks for this

Andy02

Do you know with the new tax agreement between US and switzerland, if the 3eme pillar is now tax exempt? I know it still needs to be declared, but the new tax treaty would seem to mean we do not have to pay tax on it anymore,

I'm not sure what you mean by "new tax agreement" since by all accounts the 1996 agreement that entered into force in 1998 is the latests. Other agreements are not "tax treaties" as such. The 2009 protocol relates to information exchange. http://www.ustreas.gov/offices/tax-p...ml#switzerland

Your question was actually posed in the National Assembly in 2005:
http://www.parlament.ch/f/suche/page...ch_id=20055116 As I understand it, technical explanations are not binding on the parties and issues of inconsistent interpretation go to "competent authority".

It seems to me that a new treaty might well address the issue, just as the US-Canada treaty has dealt with RRSPs (which still have to be reported as foreign trusts, but on a simplified basis).

I am aware of the inadequate treatment of pensions, and the inconsistent treatment of accretions to pensions and earnings of foreign pension funds which are exempt in their own countries but not necessarily as to their US income. I haven't had the need for an authoritative answer to your question.

In a lot of cases, just as before pensions started to be addressed in the Model Convention, taxpayers an the IRS ignore problems such as this. The new, draconian penalties make this increasingly risky. Yet, think of a child born in or brought to Britain and given a Child Trust Fund voucher by the British Government, and thus automatically a reportable trust (however trivial) and income attributable to the parents under US tax law although tax-free under UK law. And a 529 college savings fund would be exactly the opposite.

Treasury seems not to care. It took a decade to rationalise Canada's switch from estate taxation to capital gains tax on deemed sale at death: cross-border estates could be double taxed without credit. A tax protocol eventually resolved this.

Andy02. I may be wrong but I think this agreement was signed.
The text of the tax agreement signed in September 2009 accordingt to ACA can be seen at:
http://www.pwc.ch/user_content/edito...mending_us.pdf


From my reading of this, it will mean that 3a pillar will no longer need to be reported to the IRS for tax purposes. The account, will need to be declared per requirements that US citizens report all accounts whose total balance is above $10,000.FBAR

The Protocol contains a new version of Article 10(3) that expands the scope of beneficial owners entitled to the zero rate of withholding tax to include individual retirement savings plans that are set up in, and owned by a resident of, the other Contracting State. Dividends received from a controlled payor remain ineligible for the elimination of withholding tax under the Protocol. In addition, in order to be eligible for the zero rate of withholding under the Protocol's new version of Article 10(3), the competent authorities of the Contracting States must agree that the pension or other retirement arrangement, or individual retirement savings plan, would generally be recognized as such for tax purposes in the other Contracting State. Although the Protocol does not contain details as to how taxpayers are to substantiate their satisfaction of this requirement, it is likely that a Memorandum of Understanding or Exchange of Notes accompanying the Protocol will provide the necessary guidance.


I also read the article that was posted from ACA web site. There is says that keep a record of 2nd Pillar pension contributions reported to IRS to avoid
double taxation. What do I make a record of? The amount of the contribution is US dollars that is made each month?

Thanks for that. I had not seen the document before. (I am still resident in London, moving to our new apartment in Montreux shortly.) The protocol is not ratified and so does not show up in my online sources (and isn't in force). Because I have to pay to use proprietary databases (RIA especially) I wasn't going to do that for free...

As I suggested, progressive changes to treaties to deal with pension reality are under way. I think Article 1 of the text you linked to exempts dividends from tax. It will not affect reporting requirements (Form 3520 etc.) But let's see what the treaty gurus say. I'll have a look at what RIA says next time I have a reason to log on.

By way of further defence, Treasury's Web site's link to the text of the protocol is broken. I had to rely on the Press Release: http://www.ustreas.gov/press/releases/tg297.htm ("United States, Switzerland Sign Agreement to Bolster Tax Information Exchange")

Get yourself a ring binder and put in whatever statements you get (unless they're available in perpetuity online). You can write in pencil the US$ equivalent, or you can use annual averages. The point with foreign trusts and pension accretions is that once you've paid tax in the other country you should never have to pay tax there again. That would be treble-taxation.

I write on this stuff, and I've been collecting situations in which the tax is more than 100% of income. That most often happens when there is no "notch credit" at the margins and various benefits and tax concessions are lost by a low-paid worker. But remember that before Margaret Thatcher there was an 83% tax rate, increased to 98% for "unearned income". (That led to the Lloyd's of London scam, but the story is too complicated to tell this evening.)

Sorry for what may be an obvious question, but this is my first tax year in Switzerland and my wife and I (EU citizen) are also looking at purchasing a house and I discover something new and disturbing about US Tax law everyday it seems.

So having said that, as a US citizen, how exactly are 2nd pillar contributions from myself and my company treated under US Tax law? Do I declare one or the other or both as regular income?

Also, in terms of a 3rd pillar account, does that make sense to be involved with here for a US citizen? Are the potential tax liabilities too great?

Thanks in advance for any response.

It is ALWAYS a good thing to save more for retirement. In recent years (US) Treasury policy has been to eliminate anomalies that lead to double taxation -- usually because of the time-shifting nature of pensions: You save before-tax earnings and they grow tax-free, and then you pay tax (usually at a lower marginal rate) on an annuity after you retire. But if the treaty partner country does not respect the quality of that fund as a pension and taxes it when earned (and its accretions year by year, causing an accounting nightmare), the worker may be taxed twice: depending on his residence in retirement he may have to pay full tax on each annuity payment.

Furthermore, when the fund is not held in an individual account (think of an IRA or a Canadian RRSP) but in a sort of mutual fund, the fund itself may be taxed on dividends received on shares/stock of other countries' companies.

New tax treaties and protocols (see the reference above) aim at rationalizing that and encouraging pension saving. The 2009 Swiss-US Tax Protocol (treaty amendment) has been touted as improving "information sharing" but the unmentioned pension provisions will be more important to most cross-border workers. Until ratified by the Senate and in force, there will still be anomalies. And there may be a need to file form 3520 (foreign trust) annually -- perhaps under the same relaxed provisions fixed for Canadian RRSPs.

Of course Swiss nationals born by accident in the USA who ignore their US connection and file no tax returns (the original subject of this thread) will scarcely pay heed. My daughter, by accident of birth, has four nationalities including Swiss and if required to abide by conflicting laws of all four she would be is a state of panic.

I have to go to a meeting now but will look more closely at the treaty before answering your question. My guess is that Second Pillar qualifies as a pension now, and that Third Pillar will so qualify under the new treaty. I invite others to comment until I can do the research.

Bear this in mind: if you take just the country pair US-UK, it is risky for any taxpayer of one country to buy a unit trust/mutual fund/SICAV of the other because such common funds are qualified for tax purposes only in the State in which they are sold. That's true also of US college savings (529) plans and UK Children's Trust Funds, or IRAs (Roth or otherwise) vs. UK ISAs. But people do it anyway, and there seems to have been a don't-ask-don't-tell policy at IRS. That may change now that there's new hostility to expatriate and "accidental" Americans.

And you won't get a straight answer from the IRS. Since I worked with some of them as US Embassy colleagues in the past I was once privy to their thinking. But I retired from the US Government in the 1990s and now it's as opaque to me as to everyone else. I have to rely on treatises and proprietary databases (CCH, RIA...) for help.

BTW it is sometimes possible to convert a foreign pension (typically a Third Pillar type) from another country into an IRA. I've heard accountants and expats talk about it, and there's some stuff online. The UK and Canada seem to allow it and the US allows inward transfers. I don't know about Switzerland.


(I have more and better experience with First Pillar taxes/contributions and benefits: first, because I was on the periphery of early Totalization Agreement negotiations (I accompanied the US HEW Secretary on meetings in the 1970s). While some systems (US and UK especially) can be "gamed", there is no longer any forced redundancy of taxes and benefits can be coordinated if one doesn't qualify for a pension in both countries (but duplicate contributions two countries in the same year are wasted). For the US there are some anomalies (you can search under "WEP" and "GPO" on the Social Security Administration Web site) -- this to counter the skewing of benefits in favour of the low-paid. Tax treaties routinely provide that basic state pensions shall be taxed only in the country of residence. And US firms and their subsidiaries for which Second Pillar pensions are "integrated with Social Security" sign voluntary agreements with the SSA subjecting their US expatriate workers to FICA regardless of where in the world they are posted.

(Compare on this the Federal pension structure for its own workers since 1984: Social Security (FICA), a second-pillar that pays at an increased level to retirees until age 62, and the Thrift Savings Plan that is like an IRA but has contributions partially matched by the USG. In handling tax returns for expatriate Americans I treat the latter two systems as Government pensions, typically exempt from local taxation under Art. 19 (say) of the tax treaty and taxed by the USA only. (The issue is muddled for dual nationals.) Social Security is taxed only in the country of residence. Prior to 1984 Federal workers had a different pension scheme and did not pay FICA and unless they opted out such workers continued to be exempt until retirement.)

Back later.

Sorry, but I am having a hard time following your post; as I am really not sure where this information comes from.

1) Yes, there are many people who may have the right to US citizenship by birth, but normally this must be proved and documented, ie. they must have acted accordingly to claim the citizenship. The potential right to US citizenship also depends on the year born (ie. the law in effect at the time), and the situation of having one or two US citizen parent(s), etc., their marriage status or not, having lived in US a certain time, etc.. Normally, before the child's age of 18, a parent must claim the US citizenship of a child born abroad and prove the necessary requirements. This ususally entails a counselor report of birth, passport, SS number, or possibly naturlization procedures.

2) The other situation, where many may have the possible right to citizenship but never knew it or never acted upon it, is quite different. I have never known anyone being persecuted by the IRS, passport control, or gone after upon death for inheritance etc. if they never claimed US citizenship. Nor do I know anyone in this category raising their hand and documenting themselves now only to have to pay back taxes, FBARs, etc.

Putting of number of thousands or any number on so-called non-filers, must be in reference to the first category, ie. documented US citizens; as the US gov't has no idea who and how many may possibly fall in the second category.

Further, it is well known that even the US gov't doesn't have half decent figures on the first category either, as they have never done an overseas census and in the case of a few tries at it, no realtistic figures were ever derived.

You misunderstand the US Immigration and Nationality Act. One either is or is not a citizen at birth. Adoption and naturalization are other acts that can lead to citizenship and require a demarche, but citizenship jus soli or jus sanguinis is dependent upon facts: of place of birth, marital status of parents, prior resident of parent(s) for a qualifying period in the USA. Whether a person was in fact born in Mexico or the US, and/or whether his mother lived in the USA for the requisite number of years, including a 2-year (formerly 5-year) period after reaching the age of 14 are facts to be proven. (There is a rebuttable presumption of alienage: Rios v. Civiletti, 571 F. Supp. 218 (D.P.R. 1983).) If the child is born abroad and the mother is unmarried she must have spent one continuous year of her life in the USA without ever leaving. If, for example, she lived for the first year of her life in Point Roberts WA or Derby Line VT, and then left North America forever, who is to believe that she never stepped over the border in that one year?

Registration of the birth of an American citizen abroad has no effect in law. Because of the fraud problem, however, all such registrations (or applications for passports) made after age 5 must be sent to the Department of State for adjudication.

In short: unlike Switzerland, the USA does not know who all its citizens are. (Neither does the UK.) A Swiss, on the other hand, who lives abroad, has a second nationality, and fails to report to a consular official the desire to retain Swiss nationality by the age of 22 will lose that nationality as a matter of law. Just as Swiss women who married foreigners used to lose their citizenship without notice if they thereby acquired foreign nationality.

Former US law revoked the US citizenship of certain expatriates. The Supreme Court cases Afroyim v. Rusk 387 U.S. 253 (1967) and Vance v. Terrazas, 444 U.S. 252 (1980) retroactively restored it -- but just like Law No. 1 of the Allied Control Council revoking the Nazi cancellation of citizenship of emigrant Jews (and other Nazi laws), no government can, at a time after birth or adoption (with some argument as to marriage) impose its nationality, unwanted, on anybody. The IRS responded with Rev. Rul. 75-357, PLR 8138071 to the effect that if an involuntarily expatriated person did not thereafter claim an attribute of US citizenship, no income or estate tax would apply to that person.

The voluntary expatriation cases (Meier Kahane, Norman F. Dacey ...) are more interesting, as expatriation is a complex proceeding and, these days, involves announcement in the Federal Register and filings with the IRS. But your post does not reach that issue.

Suffice to say, when you write "before the child's age of 18, a parent must claim the US citizenship of a child born abroad and prove the necessary requirements" that is simply wrong; it is not the law. As I said, except in naturalization cases you do not "claim" citizenship: you claim recognition of a status which already exists. That said, except for persons who have applied for passports, or at least social security cards, no central register exists. The IRS is not competent to rule in citizenship matters and the Department of State has no interest in making a citizenship determination in the absence of a request.

There remain many questionable cases, and one doesn't need the anti-Obama "birthers" to tell us that. Birth certificates signed by midwives following home births near the Texas-Mexican border have been disputed by the Department of State following cases of fraud. The presence of mothers in the USA for qualifying periods is often in doubt in the absence of school records (and there was a time, including when Obama was born, that the mother of a child born abroad of an alien husband would have had to have resided in the USA for 5 years after the age of 14. A child born abroad to an 18-year-old mother could not qualify: http://travel.state.gov/law/info/info_609.html

So: if a facts of undeclared citizenship and nonfiling is brought to the attention of the IRS (perhaps by an aggrieved former spouse or a commercial adversary or a blackmailer) the IRS may or may not respond. But its investigatory powers and practices are increasingly sophisticated (they go through garbage, they use the Internet...) What we don't know is the issue I started this thread with: how much cooperation can the IRS expect from Switzerland or some other country of which a target nonfiler is an acknowledged citizen? And even more interestingly, what if the nonfiler is not Swiss but is an EU/EEA citizen claiming freedom of establishment rights in Switzerland?

All the US tax treaties claim the right for the US to impose tax on its citizens and permanent residents living in the treaty partner country. Here's the US-Switzerland text:

"Art. 1 ... 2 Notwithstanding any provision of this Convention except paragraph 3 of this Article, the United States may tax a person who is treated as a resident under its taxation laws (except where such person is determined to be a resident of Switzerland under the provisions of paragraphs 3 or 4 of Article 4 (Resident)) and its citizens (including its former citizens) as if this Convention had not come into effect."

There follow exceptions, typically for government service pay and pensions; the UK treaty includes social security.

But these provisions do not necessarily entail (except in Canada and to a questionable degree a few other countries) the assistance of the treaty partner in collecting money (providing information, including bank data, is another matter). And even in collection cases there is an exception for nationals of the other country. Which brings us back to uncharted waters.

Returning to the above questions: there is simply no authoritative discussion of these issues regarding Switzerland. However, a 2003 article on similar revisions to the US-UK Treaty was published in the Oct. 2003 issue of the Journal of Taxation: "New U.S.-U.K. Treaty Generally Avoids Double Taxation of Pension Contributions and Distributions". It seems to me the following three paragraphs borrowed from that article make clear both the intent and the doubt. You and your accountant can draw your own conclusions:

"U.S.-U.K. Treaty prepared by the Treasury (Department of the Treasury, Technical Explanation of the Convention Between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and on Capital Gains [at 49 words, surely a record-setter of some sort—Ed.], available at http://www.ustreas.gov/offices/tax-p...ry/teus-uk.pdf) explicitly refers to applicable limits under U.S. tax laws regarding elective deferrals, annual additions, and employer deductions set forth in Sections 402(g) , 415 , and 404 , respectively. Arguably, other provisions of the Code may affect the amount of relief available under Article 18, including applicable limits relating to compensation under Section 401(a)(17) or other limitations resulting from compliance with the nondiscrimination requirements of Sections 401(a) , 401(k), and 401(m).

"Also, further guidance will be needed regarding the types of "pension schemes" that will be treated as falling within the scope of Article 18. The Notes specify that approval is given to plans that are qualified under Section 401(a) , individual retirement plans (including simplified employee pension plans under Section 408(k) ), IRAs, Roth IRAs, plans established under Section 403(b) and a few other types of arrangements.

"Nevertheless, the very definition of 'pension scheme,' set forth in Article 3(1)(o) of the convention, only covers 'any plan, scheme, fund, trust or other arrangement established in a Contracting State which is ... generally exempt from income taxation in that State and ... operated principally to administer or provide pension or retirement benefits or to earn income for the benefit of one or more such arrangements.' It is unclear whether unfunded, nonqualified deferred compensation arrangements, typically maintained for executives, such as excess benefit plans, mirror Section 401(k) plans, supplemental executive retirement plans, and Rabbi trusts, constitute "pension schemes" for purposes of the convention."

The sequel: "Swiss banker turned whistleblower ended up with a prison sentence", Washington Post, May 16, 2010 http://www.washingtonpost.com/wp-dyn...051500089.html Bradley Birkenfeld had a grievance against UBS and hoped to get rich with a 30% whistleblower's reward. But he was dealt with as a mere "tipster" and got 40 months in prison for his trouble. The story continues...

Thats "funny", it does not seems governments care anymore on those bank fraud issues...

They had their climax when they show the world how they were against frauders, etc... and now that the media attention is gone, it all went back as it used to be.

Actually I think you will find that pretty well every country allows a claim up to the value of the inheritance - the claim is normally against the estate, not the heir. What is not allowed by that decision (and I believe what Switzerland tried) is to claim any excess above the value of the inheritance from the heir.

I have heard of this in other places so I guess the ECHR decision made several countries change their law...

It is true as you imply that in civil-law countries (but not common-law countries) the heirs of an insolvent decedent can (if they do not refuse the inheritance or claim it subject to an accounting) inherit debts, even be made bankrupt. (I heard of, but could not find a case report for, an infant who was made bankrupt in that way.)

However, as far as I can tell, and at least in the case of A.P. v. Switzerland, there was no question in fact of the heirs being out of pocket:

"There was no question of punishing the applicants for criminal acts committed by the deceased. Rather, the liability of the person who had evaded taxes was imposed on his estate. This was clear from the fact that the applicants would not have been liable to pay the fine if they had renounced the inheritance, and that in any event they were not liable for more than their share in the estate." (Submission of the Swiss Government) http://www.ius-software.si/EUII/EUCH...9_08_1997.html

The USA is rather special in this kind of thing because federal bankruptcy law does not apply to decedent estates: it is state probate courts that deal with this. But federal tax law can pre-empt state law, especially with respect to statutes of limitation, which tend to be short with respect to claims against estates. Still, the IRS is dependent upon state law for determination of the rights of a particular tax debtor in property (and thus, in relation to joint, entireties and community property, the rights of a spouse who did not file a joint tax return with the debtor). I could envisage comparable issues arising in Switzerland if a tax debtor had assets in trust or in a Stiftung or other entity: Leslie Caron's father's succession remained in litigation for a decade in France over such (non-tax) issues: http://www.uniset.ca/other/css/caron-odell.html

On the reciprocal situation: Adam J. Hirsch has written several law journal articles on insolvent debtors who renounce inheritances. And a number of US cases deal with fraudulent transfers ("Paulian [or revocatory] actions" in civil-law parlance), especially the limitations (prescription) period. In both situations the problem is often a tax levy against the transferee; the proper advice for an estate planner to give is to set up a discretionary trust so that no funds can go to creditors, not even to the tax authorities.

As for the UBS tax-evader cases: we haven't seen the end yet, nor even the most interesting issues. Aside from American-Swiss dual nationals (AFAIK not covered by the information release agreement) there are those who had assets in UBS within tax-haven companies and trusts. A foreign trustee or directors may refuse to return the funds to the USA, and the American taxpayer can be jailed indefinitely for contempt of court nonetheless. The litigation over "asset protection trusts" during the past decade or so has been unsympathetic to those who have hidden assets.

Fascinating - and to respond to the first post, the GAO just published a topical report with data on non-resident aliens. THis is the opposite situation, yet unsurprisingly, IRS is keenly interested in them too.

http://www.gao.gov/new.items/d10429.pdf