IRS Offers Reduced Penalties for Certain Taxpayers under IRS 2011 OVDI

Under the 2011 offshore voluntary disclosure initiative, the IRS is allowing for reduced 5% or 12.5% penalties for certain taxpayers. As detailed in FAQ 52 , the 5% penalty is available for taxpayers who (1) inherited accounts and meet specific criteria regarding the management and use of the account, (2) are foreign residents and were not aware that they were U.S. citizens, or (3) are foreign residents, have paid foreign taxes, and have less than $10,000 in U.S. source income each year. According to FAQ 53, the 12.5% penalty is reserved for taxpayers who do not qualify for the 5% penalty, but whose highest aggregate account balance in each of the years covered by the 2011 OVDI is less than $75,000.

IRS to Allow 90-day Extension of August 31, 2011 Voluntary Disclosure Deadline to Good-Faith Participants

As reported by Bloomberg, today the IRS announced that it would let taxpayers seek a 90-day extension of the August 31, 2011 voluntary disclosure deadline by showing that they have made a “good-faith attempt” to meet the deadline and explaining what information they are missing. That said, IRS spokesman Anthony Burke was quick to point out that without an extension, “[t]he deadline is still Aug. 31 and it is important and we expect that most taxpayers will meet the deadline.”

CNBC Airs Series of Reports on Offshore Tax Evasion

Last Friday, CNBC aired a series of reports on the U.S. government's current crackdown on offshore tax evasion. This article, and the corresponding video reports (found here and here), highlight several high profile cases involving UBS and HSBC India account holders, the various methods being utilized by the DOJ to obtain information on offshore accounts at banks around the world, and the current amnesty program set to expire this August. Among the most interesting points of the report is that the government "makes money for every dime spent on [these] investigation[s]," which indicates the government is likely to broaden its investigation of other foreign banks and account holders before the amnesty period runs.

U.S. Government Investigating HSBC India, with an Eye Toward Asian Banks

According to this article in yesterday's Sun-Sentinel, the Department of Justice has announced that HSBC India "may have helped potentially thousands of Americans dodge federal income taxes." The DOJ is using same type of "John Doe" summons strategy they used in their case against UBS, which resulted in UBS handing over thousands of client names and $780 million in settlement. The result of these investigations is that several Asian banks will no longer take on U.S. clients. According to the DOJ, this brings the total number of offshore banks under grand jury investigation to eight.

IRS Shifting Focus to Israeli Banks Who Helped U.S. Tax Payers Hide Assets

Attorney Asher Rubinstein indicates in this article that "Bank Leumi and other Israeli banks are [reportedly] now under investigation" by the IRS and DOJ for possibly assisting U.S. tax payers in hiding assets in foreign accounts.

An End to the Days of Offshore Noncompliance?

As reported today by the New York Times, "[Swiss] Finance Minister Eveline Widmer-Schlumpf said at a news conference in Bern that the [Swiss] government would now provide administrative assistance in cases where foreign governments sought information on account holders, even where they had only incomplete data about the suspected tax evaders." This move is meant to bring Switzerland in line with globally applicable standards regarding providing assistance in tax evasion cases, and according to Jeffrey Owens, Director of the Organization for Economic Cooperation and Development's Center for Tax Policy and Administration, could signify that "'we are coming to the end of the days of offshore noncompliance.'"

IRS Targeting Banks in Asia, Middle East, South America

As the IRS steps up its efforts to bring offshore account holders into compliance with their tax obligations, it now appears to be setting its sights on foreign banks in India, Israel, South America, and Singapore according to this article by Asher Rubinstein, Esq.

IRS Announces New Amnesty Program for Offshore Accounts

As a follow-up to the 2009 amnesty program that brought in over 15,000 taxpayers with hidden offshore accounts, the IRS has announced a new amnesty program aimed at U.S. taxpayers with accounts in offshore banks worldwide. According to Reuters:

"...this fresh effort could help the U.S. government gather more information into other international banks that have been suspected of helping Americans evade the IRS."

Official IRS Press Release on Second Special Voluntary Disclosure Initiative

The IRS has set a deadline of August 31, 2011 for U.S. tax payers to disclose income from hidden offshore accounts and get current with their taxes according to this official press release. The IRS has launched a new section of their website (available here) "that includes the full terms and conditions on the 2011 Offshore Voluntary Disclosure Initiative, including an extensive set of questions and answers to help taxpayers and tax professionals. The web site also includes details on how people can make a voluntary disclosure."

Will the UBS Whistleblower Cash In?

Once he does his time, former UBS employee Brad Birkenfeld stands to benefit financially in a massive way according to this New York Times article.

Former UBS client jailed over tax evasion

A US court handed down the first prison sentence to a US former client of UBS yesterday in a ruling that will likely unsettle the Swiss banking group's former offshore customers, reports Haig Simonian in Zurich.

Fifth UBS client pleads guilty

Juergen Homann, a dual citizen of Germany and the U.S., used sham corporations to funnel money from his UBS accounts to accounts in Liechtenstein according to court filings. Homann's UBS advisor was not identified by the court.

Mr. Homann’s name was on the list of 285 UBS clients turned over to the IRS earlier this year. Since the handover of these names, UBS has agreed to disclose the details of another 4,450 secret accounts.

The IRS has extended an amnesty for UBS clients to disclose secret offshore accounts to October 15. It is not known whether Mr. Homann sought to comply with the amnesty conditions before his indictment, but the IRS has seen a flood of disclosures in the past weeks as the result of successful prosecutions like this one.

Read more about this prosecution here.

IRS extends disclosure deadline

The IRS has extended the deadline for voluntary disclosure of foreign accounts from September 23 to October 15.

The Wall Street Journal reports that more than 3000 account-holders have come forward and tax professionals requested the amnesty extension because of the high numbers of concerned tax payers requesting advice and assistance from them.

Those who are accepted under the IRS amnesty will end up paying back taxes of between 40% and 60" of their account's value - but will most likely escape the risk of a criminal prosecution.

The Swiss Bank UBS has written to all its U.S. customers with Swiss-based accounts warning them that account information will be handed over to the IRS if a request is made by that agency.

Countdown to IRS disclosure deadline

Tax advisers are reporting a flurry of calls from anxious clients who have undisclosed offshore accounts with Swiss Bank UBS as the voluntary disclosure deadline expires on September 23. In the meantime, UBS has begun writing to thousands of clients informing them that their account information may be handed over to the IRS. In response, the IRS has added a Question-and-Answer, reproduced below, to clarify that the receipt of such a letter does NOT mean that the account-holder is ineligible for voluntary disclosure.

The IRS has previously stated that it will treat disclosures as "timely" if a taxpayer declares an intention to disclose, but has not yet completed the required returns, by the deadline.

Q52. Are UBS account holders eligible to make a voluntary disclosure under the IRS’s offshore Voluntary Disclosure Practice (VDP) announced on March 23, 2009, and set to expire September 23, 2009?

Yes, provided that the UBS account holder is otherwise eligible under the VDP. However, a UBS account holder becomes ineligible to make a voluntary disclosure under the offshore VDP at the time the IRS receives information from any source, including from the Swiss Federal Tax Administration (“SFTA”), UBS, an informant, or otherwise, relating specifically to the account holder's undisclosed foreign accounts or undisclosed foreign entities.

As part of the agreement with Switzerland and UBS announced by the IRS and the Department of Justice on August 19, 2009, UBS will be sending notices to account holders indicating that their information may be provided to the IRS under the agreement. If a UBS account holder gets this notification from UBS before September 23rd, this notification will not by itself disqualify the account holder from making a voluntary disclosure under the offshore VDP by the September 23rd deadline. Although many of these notices will not be sent by UBS to account holders until after September 23rd, the September 23rd offshore VDP deadline applies to all UBS account holders even if they have not received a notice by that date.

IRS targets up to 10,000 UBS accounts

The Jerusalem Post reports that, after the initial "John Doe summons" for the details of around 4450 undisclosed UBS accounts, the IRS expects, under a new agreement with Switzerland, to receive the account details of up to 10,000 taxpayers who may have broken US tax law.(Jerusalem Post, Aug 26, 2009)

Persons with undisclosed UBS accounts have until September 23 to report these accounts. The Post reports that the IRS has agreed that it will treat such disclosures as "timely" if a taxpayer declares an intention to disclose, but has not yet completed the required returns.

UBS agrees to disclose thousands of accounts

As part of the settlement in the case brought by the Justice Department in a Miami Federal Court, UBS has agreed to disclose the identities of more than 4000 investors who the IRS believes have evaded taxes.

Details of the settlement have not been made public, but this information, as revealed by the Wall Street Journal, suggests that a large number of U.S. investors who have not voluntarily disclosed their secret accounts will face criminal prosecution in the coming year.

UBS agrees to release investors' identities

The Justice Department is continuing to gather evidence to enable it to prosecute around 150 American taxpayers who allegedly evaded taxes using accounts offered by Swiss bank UBS AG. On Thursday, the Department announced that UBS has agreed to disclose the identities of account-holders who fit certain criteria determined by U.S. authorities.

The New York Times cites an unattributed source claiming that the account-holders who are being investigated by the Justice Department are likely to have accounts of over one million dollars. Tax authorities are keeping the criteria secret to avoid encouraging smaller investors from coming forward voluntarily. The IRS is offering an amnesty from criminal prosecution for offshore account-holders who fully disclose before September 23, 2009.

U.S. Tax Authorities Focusing on UBS Client Visits

A recent report in a Swiss newspaper suggests that United States tax authorities are taking a closer look at U.S. UBS account holders who were visited directly by UBS bankers.

Swiss bank seeks to settle tax evasion case

Only hours before a hearing in federal court between U.S. Department of Justice and Swiss bank UBS AG, both sides have announced that they will seek a settlement in the case to force the bank to release the account details of tens of thousands of U.S. clients.

The threat of the court ruling against the bank has encouraged thousands of offshore account-holders to comply with an IRS voluntary disclosure programme. The amnesty is set to expire on September 23.

The IRS succeeded earlier in the year in a more limited legal action, forcing UBS to pay a £780 million fine and disclose the details of around 300 U.S. account-holders. A settlement in this case is likely to be more far-reaching. According to this Associated Press report, the IRS and the U.S. Government are not likely to want to relieve the pressure the case has brought on UBS and Swiss banking secrecy in general.

Swiss pledge to defend banking secrecy

The Swiss Department of Justice and Police tried to close the door Wednesday on a court order that would require Swiss bank UBS AG to hand over the account information of thousands of U.S. clients who may have evaded tax, the New York Times reports.

The Swiss bank is currently defending itself in a Florida federal court against an action brought by the U.S. Department of Justice to force it to disclose the identity of around 52,000 thousand U.S. account-holders. In a case brought by the IRS earlier this year, the Bank paid a $780 million fine to the U.S. Treasury and admitted that it had encouraged U.S. investors to evade taxes.

The Swiss government statement pledged that a legal order would be made prohibiting UBS from handing over of the account information should the U.S. court make such a ruling. The Swiss hope that by clarifying that Swiss banking secrecy laws will be upheld, the Justice Department may be more amenable to a settlement, rather than to continue to try to obtain a court order that could not be enforced.

The New York Times article suggests that UBS has built up a fund in preparation for an eventual settlement with the IRS.

The Swiss have recently agreed to adopt Article 26 of the Organization for Economic Cooperation and Development’s tax convention, which requires national tax authorities to share information on request when tax evasion is suspected. However, U.S. lawmakers and the Justice Department have indicated that the case-by-case request for account information is not reasonable in this situation as UBS has admitted widespread illegality in its investment products and practices.

In the settlement with the IRS earlier this year, UBS handed over account information to the IRS on around 300 U.S. investors, in addition to paying the substantial fine. The manner in which the bank selected the accounts to be disclosed is still a mystery. But there is at least the possibility that the Justice Department is seeking a similar sacrifice to settle the current case.

No relief for UBS from Justice Department

According to Reuters, the Justice Department is showing no sign of backing off from demands that Swiss bank UBS AG come clean on the identity of tens of thousands of its U.S. customers who hold undisclosed offshore accounts.

On Tuesday, the Department announced it would aggressively pursue the Swiss bank in federal court action in Miami, as a hearing was scheduled for July 13.

Prosecutors continue to believe that the bank, which has already admitted criminal wrongdoing in offering illegal account services to U.S. customers, and paid a penalty of $780 million to the IRS, is not in a strong position to bargain.

In its defense, UBS asserts that complying with demands to hand over the identity of its account-holders would force the Bank to break Swiss banking secrecy laws. But the Justice Department seems to believe that if the Court rules in its favor, that tradition of secrecy will be put under intolerable pressure, which will help in its wider assault on tax havens, as well as in this particular case.

"John Doe summons" reveal offshore accounts

The Washington Post carries a profile of John McDougal, a special trial attorney at the Internal Revenue Service, who has used "John Doe summons" to recover tens of millions of dollars from undisclosed offshore account-holders. The Post reports:

McDougal began employing a novel approach to offshore investigations in 2002. When banks in foreign tax havens refuse to provide information about their depositors, he and his colleagues turn to U.S. companies that process financial transactions for Americans holding questionable foreign accounts.

McDougal said the IRS and the Department of Justice serve "John Doe summons" on MasterCard International, Visa, credit card processors and merchants for transaction records on credit cards issued by foreign banks. A John Doe summons is a court-ordered summons in which the name of the taxpayer under investigation is unknown and therefore not specifically identified.

Then investigators examine transaction information to identify offshore account holders, finding anomalies and conducting audits of U.S. taxpayers when there is sufficient cause to believe funds are being hidden. Once the audits ensue, the IRS can compel American taxpayers, under the threat of a potential contempt order, to release records.

Read the whole thing...

Foreign banks close door to U.S. customers

Americans who live overseas are being denied access to banking services due to the growing reluctance of foreign banks to accept U.S. citizens as customers, according to this Bloomberg report.

Swiss banks have taken a lead in closing accounts held by U.S. citizens as compliance to IRS demands becomes more stringent; but banks in other countries are concerned that new and proposed IRS reporting requirements are turning U.S. account-holders into unappealing customers.

More than 5 million American citizens live abroad, and more than 30,000 live in Switzerland. To comply with U.S. law, U.S. citizens must use banks that have registered with the U.S. Securities and Exchange Commission (SEC) and many Swiss banks will not do this as registration means that information must be exchanged with U.S. tax authorities, thus breaking Swiss banking secrecy law. Swiss Bank Sarasin, for example, now offers U.S. citizens investment and asset management advice only through its SEC-registered unit in London.

So far U.S. customers are finding their access to investment accounts are being curtailed by the IRS' actions. But there are fears that proposed increases in reporting requirements on foreign banks that withhold taxes for the IRS (qualified intermediaries) will add further financial burdens on foreign banks and increase their reluctance to offer cash and deposit accounts to U.S citizens.

This week, the politics of banking regulation heated up with two members of the U.S. Congress writing a letter to Treasury Secretary Timothy Geithner warning that if cash or deposit accounts were made subject to QI requirements, Americans living abroad would not be able to bank locally.

The IRS believes it is combating a massive failure of U.S. citizens who live abroad to pay their taxes and that its aggressive approach is necessary and justified. The agency has offered a voluntary disclosure programme that allows taxpayers to avoid the threat of criminal prosecution if foreign accounts are disclosed before September 23, 2009.

UBS client pleads guilty to tax evasion

The first U.S. taxpayer to be charged for tax evasion by investing in financial products offered by Swiss bank UBS has pleaded guilty to filing false tax returns in a Miami federal court.

UBS agreed to hand over the names of 250 clients to avoid prosecution in a settlement with the IRS in February this year and Steven Michael Rubinstein, of Boca Raton, was arrested on April 2. Rubinstein faces up to three years in prison and he must pay fines, back taxes and a 50% penalty on the highest annual balance between 2001 and 2007.

Rubinstein admitted that UBS had helped him set up offshore accounts in the Virgin Islands and Monaco and that he transferred $7 million from this account to build his Florida home.

More prosecutions are expected as the IRS continues to investigate other U.S. clients whose details UBS released to the tax authority. The IRS has offered an amnesty from criminal prosecution for customers who make voluntary disclosure of previously undeclared offshore accounts - the amnesty ends on September 23, 2009. (Bloomberg, June 25, 2009)

Swiss agree new tax deal with U.S Treasury

The U.S. Treasury has confirmed that it has agreed a new income tax treaty with Switzerland that aims to increase information exchange between the two countries to combat tax evasion. The treaty will also help Switzerland in its fight to remove itself from the OECD's "gray list" of countries which do not meet minimum standards of compliance as tax havens.

Whether this treaty will have an impact on the IRS' pursuit of Swiss Bank UBS for promoting illegal offshore products to U.S. investors, remains to be seen. (Reuters, Feb 19, 2009)