Aug 19, 2009

Deadline is Sept. 23 for Amnesty Program in IRS vs. UBS Case

On August 19, the unthinkable happened—the IRS pierced Swiss banking secrecy law.

Swiss banking giant UBS has agreed to turn over 4,450 names of U.S. account holders to the IRS for alleged tax evasion, and the IRS is currently investigating over 150 U.S. taxpayers for allegedly moving funds off-shore to conceal assets and not pay U.S. taxes. The IRS says that U.S. taxpayers can come clean and voluntarily disclose under the current tax amnesty program, which ends September 23.

Participation involves a short off-shore voluntary disclosure form. If a taxpayer turns himself in during the amnesty program, he is looking at paying in full the tax, interest and penalties. However, he is looking at only civil penalties. By taking part in the amnesty program, he will not be subject to criminal sanctions.

The importance of this case cannot be understated. Up until a few years ago, it was unfathomable that Swiss bank account information would be disclosed to anyone, let alone the IRS. The apparent success that the IRS has met with cracking Swiss banking secrecy laws is unbelievable, and it has been reported that close to $200 billion in investor funds have left UBS since the start of the IRS case.

The IRS case against UBS involves an unprecedented piercing of Swiss banking secrecy laws because of alleged outrageous behavior by UBS bankers unauthorized to conduct banking activities in the U.S. One example is how two UBS bankers dressed as tourists, we're told, came to the U.S. to visit a wealthy client and told customs that one was here to visit his brother. Another example is how a UBS banker brought jewelry back into the U.S. for a client in a toothpaste container. The jewelry allegedly had been purchased by the UBS banker out of the country at the direction of the U.S. client with undisclosed, unreported U.S. income.

The Swiss government obtains about 10 percent of its gross national product from UBS. This is highlighted by the fact that there have been reports that Secretary of the Treasury Timothy Geithner decided not to pursue full disclosure of 52,000 U.S. taxpayers for fear of pushing UBS over the edge and starting a second global financial disaster.

The IRS has been flooded with individuals who seek to voluntarily disclose and avoid jail time. Interestingly, a British attorney is trying to locate UBS clients who would join in a class action suit against UBS for breach of fiduciary duty. It is estimated that the total amount of fines to be paid by U.S. taxpayers who failed to disclose off-shore accounts will be around $4 billion.

The U.S. crackdown on undisclosed off-shore accounts goes beyond Swiss bank accounts. The IRS is now looking globally and in particular is focusing on Hong Kong. Although there are many legitimate Hong Kong companies, the IRS believes there are a large number of illegitimate companies set up solely for tax evasion.

The loss of income that UBS manages on behalf of its wealthy clients has been staggering. It is estimated that UBS has already lost $150 billion of funds because of clients' confidentiality concerns. In one week the IRS got 400 requests for the amnesty program. That is 4 times more than what they received in all of last year.

With the headlines on the IRS pursuing concealed assets, one could easily forget that there are non-tax reasons why someone might wrongly hide assets. These include against a spouse in divorce, a creditor in bankruptcy or a business partner in dissolution. If a divorced couple signed joint returns while married, the IRS may notify the other spouse of previously undisclosed assets revealed under the tax amnesty program. These are grounds for the other spouse to march back into court and have set aside the previous property settlement. Similar events would play out for prejudiced creditors and business partners. Of course, there are criminal ramifications for such things as lying under oath.

The IRS will allow voluntary disclosure up until the time UBS turns over the names. UBS is notifying the 4,450 account holders of the pending disclosure, and the IRS says that the taxpayers can wait to see if they receive a letter from UBS. However, if they want to participate in the amnesty program, they must come clean before they are identified.

Everything you do once you contact the IRS, including completing the voluntary disclosure form, can be used against you by the IRS. Its importance cannot be understated. At Chuhak & Tecson we have over a dozen dual attorneys-CPA's. Our experience in tax controversy and before Tax Court is unparalleled.

Now is not the time to take chances. If you want to disclose by September 23, with unsurpassed representation before the IRS, call us today to assist you in this matter.