IRS Gets Help From Swiss in Fight Against Tax Evasion

By Robert Steere, Toolkit Staff Writer

For those who thought their assets were safely tucked away in Swiss bank accounts, forever out of view of our American tax collectors, the day of reckoning will soon be here. To borrow a word picture from an old saying, hell has frozen over.

The Internal Revenue Service and the Department of Justice have announced the successful negotiation of an agreement pursuant to which the IRS will be provided with an unprecedented amount of information on accounts held by United States citizens at the Swiss bank UBS. The IRS will receive data on substantially all of the thousands of accounts it sought when it initiated a summons against UBS months ago.

Information to be obtained by the IRS includes bank-only accounts, custody accounts in which securities or other investment assets are held, and offshore-company-nominee accounts through which a U.S. citizen indirectly held beneficial ownership in the accounts. The U.S. government retains the right, if the response to its request is not as expected and other measures fail, to seek appropriate judicial remedies to obtain the information sought, including resuming actions to enforce the summons.

The agreement involves a number of simultaneous legal actions. First, the judicial enforcement of the summons will be dismissed, although the underlying summons will remain in effect. The IRS will make a treaty request to the Swiss government describing the accounts for which it is requesting information. Upon receiving the treaty request, the Swiss government will direct UBS to notify account holders that their information is included in the IRS treaty request. These notices will be sent on a rolling basis over a period of weeks and even months.

The hope of the IRS is that, once they read about the agreement or receive a notice from UBS, U.S. taxpayers that have failed to report their UBS accounts and their taxable income will come forward voluntary with the information and make the appropriate tax payments. The receipt of the notice from UBS will not by itself preclude the account holder from coming into the IRS under its voluntary disclosure program. However, once a taxpayer's information is obtained by the IRS from UBS through this process, by longstanding policy, he or she will not be eligible for the voluntary disclosure program.

The IRS will thoroughly examine all information obtained from UBS to determine whether any civil and criminal tax laws have been violated. The IRS will assess any additional tax, interest and applicable penalties, including the penalty for the willful failure to file a Report of Foreign Bank and Financial Accounts (FBAR). This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed.

Criminal prosecution will be recommended by the IRS in those cases where the facts warrant it. To date, the IRS and the Department of Justice have successfully prosecuted four U.S. customers of UBS whose information was provided to the IRS by UBS as part of the Deferred Prosecution Agreement.

Perhaps as important in the long run for IRS's strategy to pursue tax evaders, the Swiss government has agreed to review and process additional IRS requests for information from other banks regarding their U.S. citizen account holders, to the extent that such requests would be based on fact patterns equivalent to those of the UBS case.