As the Journal of Accountancy reported yesterday, a Swiss court blocked the release of confidential information identifying the owners of 26 Swiss bank accounts sought in the IRS’ ongoing tax-fraud investigation. Considering that the earlier settlement entitled the IRS to information on 4,450 accounts, this is an almost imperceptible victory for proponents of Swiss bank secrecy. Nonetheless, for the owners of those accounts, the decision is certainly more than welcome.
The ruling, delivered by a Swiss administrative tribunal, determined that simply failing to file an informational form identifying the account owner as a U.S. citizen (IRS From W-9) does not constitute tax fraud. Since the tribunal ruled that its decision could not be appealed, the owners of the 26 accounts in question are, at least for now, safe from further scrutiny, and ultimately, penalties and interest on unreported earnings. As the settlement reached earlier this year between the IRS and Swiss government called for the release of roughly 10,000 names, the IRS will likely let the 26 accounts covered by the Bundesverwaltungsgericht’s ruling in U.S. Taxpayers v. Swiss Federal Tax Administration forgo further investigation. It is unclear, however, whether more of the 10,000 names to be released will benefit from this ruling.
As The Wall Street Journal reports, UBS plans to release the names of 4,450 Americans holding UBS accounts as part of its settlement with the US and Swiss governments. The initial release of 4,450 names represents only about half of the total identities the US hopes to receive from UBS. With this information, the IRS and Department of Justice can begin criminal tax-evasion proceedings against these individuals. At issue is an estimated $10 billion on which US income taxes were never paid. Simultaneously with the announcement that UBS was releasing the names, the Swiss government moved to sell shares it held in the bank. This is largely seen as a move to distance the Swiss government from UBS at a time when it is increasingly interjecting itself into the banks affairs.
While the release of names was not unexpected (see “UBS, Swiss Government Reach Settlement with IRS” and “UBS Troubles Spread to Hong Hong“), it represents a significant weakening of the once-infamous Swiss bank privacy laws. To combat this problem, the process by which the IRS will receive the names is a bit tedious. UBS will first turn the names over to the Swiss government’s tax administration for review, after which the names will be forwarded to the IRS and Department of Justice. To begin, 500 names will be released, with the remaining provided in batches in future months. For the thousands of American clients of UBS who now find themselves in the government’s crosshairs, there is a bit of hope.
Until September 23, 2009, the US government is accepting voluntary disclosure of the accounts not previously reported to the Treasury. Theoretically, those who volunteer their information will face less-stringent prosecution than those the IRS discovers on its own. Either way, many individuals are likely to face criminal prosecution for tax evasion. Given that the average size of the UBS accounts in question is approximately $1 million, the fines and penalties can be substantial. Already, the IRS has begun prosecuting some former clients of UBS and reached settlements with others.
For more detail on the settlement and more information regarding the ongoing negotiations between the US government and UBS, see the Journal’s original article, “UBS to Give 4,450 Names to US.”
Following the settlement between the IRS, UBS, and the Swiss government, the IRS probe now widens to include UBS’ operations in Hong Kong. According to court documents filed by the US government, UBS used Hong Kong-based entities to launder funds received from its American clients. As The Wall Street Journal reports, recent plea agreements negotiated between American clients of UBS and the US government are beginning to reveal how the Swiss bank serviced its US clients in its ellaborate efforts to help clients evade US taxes. As these plea agreements continue to be publicized, we should begin to better understand the extent of UBS’ illegal activities and, hopefully, the extent to which the Swiss bank swindled the American public. Remember, the evaded income tax revenue has to be made up somewhere, be it through borrowings (sales of US Treasury bills) or other taxes.
Following months of negotiations and often-negative press, it appears that the IRS has reached a settlement with UBS AG and the Swiss government regarding an IRS probe into the identify of roughly 52,000 US customers of the Swiss banking giant. For months, the IRS has sought the identify of the UBS customers as part of an investigation in tax evasion. The IRS suspects that most of the individuals and entities whose identities it seeks have neither paid taxes nor declared the existence of their Swiss-based UBS accounts. Given the world-renowned strength of Swiss bank secrecy laws, the request has caused quite a headache for all parties involved.
While details of the settlement haven’t been released, one individual involved in the negotiations expects that more than 10,000 names will be released, representing roughly one fifth of the total sought by the IRS. For more information (what little is available), see today’s Wall Street Journal article “UBS, Swiss Reach Pact on U.S. Tax Probe.”