In a sweeping pact that will help uncover hidden Swiss bank accounts held by American taxpayers, UBS will turn over the names behind 4,450 accounts as part of an agreement between the U.S. and Swiss governments.
The Internal Revenue Service has been seeking the identities behind 52,000 accounts it suspects are held by U.S. taxpayers by issuing a series of "John Doe" summonses that have been at issue in a Miami court. Under the agreement, the IRS will submit a treaty request for administrative assistance to the Swiss Federal Tax Administration specifying the accounts on which it is seeking information, and UBS will provide approximately 4,450 accounts to the SFTA in response to the treaty request. The SFTA will then decide which of those accounts should be disclosed to the IRS, and the decisions will be subject to judicial review.
UBS has also agreed to send notices to U.S. account holders encouraging them to take advantage of the IRS's voluntary disclosure program, and to instruct them to send their account information and documentation to the IRS.
Under the agreement, the IRS will withdraw the remaining John Doe summonses on or after Jan. 1, 2010, once it has received the identities behind 10,000 UBS accounts. Those names could come from the Swiss government, UBS, or the voluntary disclosure program. They would also include the 250 to 300 names that UBS turned over in February as part of a deferred prosecution agreement. UBS will pay no extra penalties besides the $780 million it paid under that agreement.
The Justice Department said that as a result of the agreement, the U.S. would "receive substantially all of the accounts of interest when it initiated the John Doe summons against UBS on June 30, 2008."
IRS Commissioner Douglas Shulman noted that the 52,000 accounts cited in the media included many held by "U.S. people who had complied with the law and paid their taxes." UBS had reported the 52,000 as the number of accounts with any U.S. connection. At one time, these accounts held over $18 billion.
UBS will notify account holders that their information is included in the IRS treaty request. It is expected that the notices will be sent on a rolling basis, with some being sent over the coming weeks and others over the coming months. Receipt of the notice will not by itself preclude the account holder from coming into the IRS under the voluntary disclosure program, which is due to end on Sept. 23, 2009.
In addition, the Swiss government has agreed to review and process additional requests for information from other banks regarding their account holders to the extent that the request is based on a pattern of facts and circumstances equivalent to those of the UBS case.
The Justice Department said that the information provided to the IRS will be thoroughly examined for all potential civil and criminal tax violations. The IRS will assess any additional tax, interest and a number of applicable penalties. This includes the penalty for the willful failure to file a Report of Foreign Bank and Financial Accounts, or FBAR. The penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed.
Under the voluntary program, account holders must pay 20 percent of the tax that was underpaid for the past six years and 20 percent of the highest value of the account over the past six years, in addition to all their unpaid taxes and interest due on those taxes.
The IRS will also recommend criminal prosecution in cases where the facts warrant. To date, the Justice Department and the IRS have successfully prosecuted four U.S. customers of UBS whose information was provided to the IRS by the Swiss bank as part of the deferred prosecution agreement. Individuals whose information is obtained by the IRS through this process will not be eligible for the voluntary disclosure program.
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