Cincinnati IRS Tax Amnesty for Foreign Bank Accounts Cincinnati Offshore Bank Accounts Report Voluntary Disclosure


[ Back ] AMNESTY FOR UBS AND OTHER FOREIGN ACCOUNTS On August 19, 2009 UBS AG (Union Bank of Switzerland) agreed to disclose account information to settle a U. S. lawsuit seeking the names of Americans suspected of evading U. S. taxes through 52,000 UBS accounts. The bank will make documentation available to the Swiss government (the Swiss Confederation) who, in turn, will determine which accounts will be disclosed to the IRS. Government sources say the settlement and related negotiations pinpoint an initial disclosure of 4,450 high balance UBS accounts in coming months. 52,000 accounts is not the current disclosure target. It is merely the number of accounts that UBS has reported as having a U. S. connection. The Swiss agreement is the end result of an IRS "John Doe summons" issued to UBS pursuant to 26 U.S.C. Section 7602(a). Also relevant is a 1996 tax treaty between Switzerland and the United States. The key case is U. S. v UBS AG, 09-cv-20423, U. S. District Court, Southern District of Florida (Miami). As a result of the litigation the Swiss Confederation entered into an agreement based upon Article 26 of the treaty between the United States of America and the Swiss Confederation, dated October 2, 1996, with amendment/mutual agreement dated January 23, 2003. The treaty provides for a mutually agreed upon mechanism to exchange information for the prevention of "tax fraud or the like". The Internal Revenue Service is preparing to receive information on 4,450 UBS bank accounts in 2009 and 2010. The focus of the Internal Revenue Service is what it refers to as the "global high-wealth industry". IRS audits/tax evasion investigations will be conducted by an elite division of the IRS with experience in navigating international treaties and understanding complex cross border transactions and tax structures. The newly formed IRS group will focus on webs of entities and arrangements controlled by high-wealth taxpayers - including dummy corporations, partnerships, trusts and foreign entities designed to conceal true ownership. The IRS anticipates handling over 20,000 new cases related to UBS, including the thousands of taxpayers who voluntarily disclosed their accounts in exchange for a non-prosecution agreement and reduced penalties under the amnesty. The amnesty filing deadline, originally September 23, 2009, was extended to October 15, 2009. The amnesty program has resulted in 14,700 taxpayer applicants as of October 15, 2009. The first 4,450 UBS accounts to be turned over will be those of wealthy American taxpayers of interest to the IRS. IRS Commissioner Doug Shulman stated at a press conference on August 19, 2009 that the initial 4,450 accounts should represent $18,000,000,000 in assets including securities, commodities and cash. The agreement indicates that the Swiss authorities had until December 1st of 2009 to decide on the details of the first 500 accounts to be disclosed. The remaining 3,950 accounts are to be turned over within the following year. The amnesty program obviates a criminal prosecution if the taxpayer fully cooperates with the Internal Revenue Service. Generally, the amnesty will entail foreign account disclosure with a follow up filing of six years of amended returns (Forms 1040X) which will be subject to an income tax assessment for any foreign income understatement, plus a 20% negligence penalty and accrued interest. Additionally, the amnesty agreement requires a taxpayer to pay an additional penalty of 20% on the highest foreign account principal balance at any time during the past six years. Delinquent Forms TDF 90.22.1 (Taxpayer Disclosure of Foreign Bank Account - FBAR) must also be filed. WHAT ARE THE STAKES IF TAXPAYERS DID NOT COME FORWARD UNDER THE AMNESTY PROGRAM? Possible criminal prosecution. Even if there is a criminal investigation without prosecution such an investigation is expensive, stressful and usually shines a bright light on a taxpayer's legal and illegal activities as well as a complete exposure of a taxpayer's financial and tax life. A business life can be ruined. Taxpayers can expect the civil fraud penalty of 75% of any income understatement documented by the IRS. Onerous penalties for willful failure to file foreign bank account report Form TDF 90.22.1 will apply, that is, up to 50% penalty based upon the account value of the foreign account for delinquent FBAR filings computed for each year beginning with the 2007 filing year. Under the amnesty program, any taxpayer who successfully completes the program requirements will not be criminally prosecuted. Amnesty was only available through October 15, 2009. Taxpayers considering the amnesty program must understand that they may be audited by the IRS to determine if they owe any other taxes to the government over and above the tax and penalty liabilities reflected on amended returns and delinquent FBAR reports. This is true even if they are granted reflief from criminal charges and pay the taxes, penalties and interest accruals associated with amnesty program filings. Taxpayers should not attempt to enter any voluntary IRS disclosure without first seeking the advice of an attorney experienced in handling criminal tax matters. The key to receiving amnesty from criminal prosecution under the program is providing complete, accurate and honest information to IRS criminal investigators - as well as to IRS Revenue Agents should there be an examination of their returns. An oversight or failure to provide required information could result in criminal charges such as making false statements or providing false documents to a government agent. WHAT ABOUT TAXPAYER DISCLOSURES AFTER OCTOBER 15, 2009? IRS interest in wealthy Americans suspected of offshore tax evasion will continue for many years. IRS summons are likely to be issued to other foreign banks utilized by Americans. Switzerland and Luxembourg cooperation treaties have already been amended. Initial UBS disclosures to the Internal Revenue Service will not fully take place until the end of 2010. Additional disclosures will be made in the years following. Other Swiss banks are agreeing to disclose their account records. IRS efforts are multi year and multi country. In an IRS Newswire released on August 19, 2009 (IR-2009-075) the IRS disclosed that the agreement with the Swiss Confederation requires long term Swiss compliance with the treaty exchange information program. The agreement involves a number of legal actions including that "The Swiss government has agreed to review and process additional requests for information for other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case." IRS Commissioner Doug Shulman's press remarks on August 19, 2009 indicated that the UBS agreement is "an historic development in our international efforts and it helps build a solid foundation for addressing future offshore issues. This is a sound agreement that is good for the nation's taxpayers. The agreement puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further, the Swiss government is prepared to work with us regarding similar U. S. requests, if any, involving other institutions." Shulman's press remarks included the following comments: "The IRS wants to be clear on another point. International tax evasion will continue to be a top priority. This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area. International enforcement is a top priority . . . ." In an earlier statement by IRS Commissioner Doug Shulman, on March 26, 2009, he stated that the "IRS goal has always been to obtain tax compliance from taxpayers hiding assets offshore." The IRS goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of IRS voluntary disclosure practices. There is a clear line between those individual taxpayers who voluntarily came forward with offshore information and those who continue to avoid their tax obligations. People who come in voluntarily, stated Commissioner Shulman, will continue to obtain a fair settlement. The implication is better treatment for taxpayers who voluntary come forward even after the October 15, 2009 amnesty deadline. An IRS knock on the door of a taxpayer who has not made a voluntary disclosure will mean a criminal investigation and maximum income tax and FBAR penalties. The IRS has long had a voluntary disclosure program which historically has obviated thousands of criminal prosecutions. See Internal Revenue Manual 9.5.11.9 (Tax Crimes - General). Post October 15, 2009 voluntary disclosures of UBS accounts or other offshore accounts in Switzerland or different tax havens will not automatically guarantee immunity from prosecution; however, a post amnesty voluntary disclosure does not necessarily result in an IRS criminal prosecution. Over the years this office has seen that taxpayer voluntary disclosure of past tax avoidance/evasion normally does not result in criminal prosecution. Usually a criminal recommendation does not go forward from Internal Revenue Service criminal investigators. Those cases that go forward based upon an IRS criminal prosecution recommendation have a history of being rejected by IRS District Counsel, the local United States Attorneys Office and/or the Department of Justice. Having said that, the IRS is posturing that offshore confessors post October 15, 2009 will typically face harsher civil penalties than amnesty taxpayers who made a timely voluntary disclosure (READ: 75% civil fraud penalty on unreported income). This writer also anticipates stiff civil penalties for late filing of required Forms TDF 90.22.1 (filings related to foreign bank accounts). IRM 9.5.11.9(4) reflects general IRS voluntary disclosure guidelines outside the UBS amnesty program: "A disclosure is timely if it is received before: a. The IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation; b. The IRS has received information from a third party (e.g., informant, or other government agency, or the media) alerting the IRS to a specific taxpayer's non-compliance; c. The IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or d. The IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena)." In general, the Internal Revenue Manual encourages/requires that Special Agents of the IRS Criminal Investigation Division consult with IRS attorneys on voluntary disclosure issues. However, taxpayers best make their voluntary disclosure before the Swiss government turns over account documentation on a rolling basis over coming months. The IRS is likely to open a taxpayer criminal investigation the week of receipt of UBS bank account information. [ Back ]

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AMNESTY FOR UBS AND OTHER FOREIGN ACCOUNTS

On August 19, 2009 UBS AG (Union Bank of Switzerland) agreed to disclose account information to settle a U. S. lawsuit seeking the names of Americans suspected of evading U. S. taxes through 52,000 UBS accounts. The bank will make documentation available to the Swiss government (the Swiss Confederation) who, in turn, will determine which accounts will be disclosed to the IRS. Government sources say the settlement and related negotiations pinpoint an initial disclosure of 4,450 high balance UBS accounts in coming months. 52,000 accounts is not the current disclosure target. It is merely the number of accounts that UBS has reported as having a U. S. connection.

The Swiss agreement is the end result of an IRS "John Doe summons" issued to UBS pursuant to 26 U.S.C. Section 7602(a). Also relevant is a 1996 tax treaty between Switzerland and the United States. The key case is U. S. v UBS AG, 09-cv-20423, U. S. District Court, Southern District of Florida (Miami).

As a result of the litigation the Swiss Confederation entered into an agreement based upon Article 26 of the treaty between the United States of America and the Swiss Confederation, dated October 2, 1996, with amendment/mutual agreement dated January 23, 2003. The treaty provides for a mutually agreed upon mechanism to exchange information for the prevention of "tax fraud or the like".

The Internal Revenue Service is preparing to receive information on 4,450 UBS bank accounts in 2009 and 2010. The focus of the Internal Revenue Service is what it refers to as the "global high-wealth industry". IRS audits/tax evasion investigations will be conducted by an elite division of the IRS with experience in navigating international treaties and understanding complex cross border transactions and tax structures. The newly formed IRS group will focus on webs of entities and arrangements controlled by high-wealth taxpayers - including dummy corporations, partnerships, trusts and foreign entities designed to conceal true ownership.

The IRS anticipates handling over 20,000 new cases related to UBS, including the thousands of taxpayers who voluntarily disclosed their accounts in exchange for a non-prosecution agreement and reduced penalties under the amnesty. The amnesty filing deadline, originally September 23, 2009, was extended to October 15, 2009. The amnesty program has resulted in 14,700 taxpayer applicants as of October 15, 2009.

The first 4,450 UBS accounts to be turned over will be those of wealthy American taxpayers of interest to the IRS. IRS Commissioner Doug Shulman stated at a press conference on August 19, 2009 that the initial 4,450 accounts should represent $18,000,000,000 in assets including securities, commodities and cash.

The agreement indicates that the Swiss authorities had until December 1st of 2009 to decide on the details of the first 500 accounts to be disclosed. The remaining 3,950 accounts are to be turned over within the following year.

The amnesty program obviates a criminal prosecution if the taxpayer fully cooperates with the Internal Revenue Service. Generally, the amnesty will entail foreign account disclosure with a follow up filing of six years of amended returns (Forms 1040X) which will be subject to an income tax assessment for any foreign income understatement, plus a 20% negligence penalty and accrued interest. Additionally, the amnesty agreement requires a taxpayer to pay an additional penalty of 20% on the highest foreign account principal balance at any time during the past six years. Delinquent Forms TDF 90.22.1 (Taxpayer Disclosure of Foreign Bank Account - FBAR) must also be filed.

WHAT ARE THE STAKES IF TAXPAYERS DID NOT COME FORWARD UNDER THE AMNESTY PROGRAM?

Possible criminal prosecution. Even if there is a criminal investigation without prosecution such an investigation is expensive, stressful and usually shines a bright light on a taxpayer's legal and illegal activities as well as a complete exposure of a taxpayer's financial and tax life. A business life can be ruined.
Taxpayers can expect the civil fraud penalty of 75% of any income understatement documented by the IRS.
Onerous penalties for willful failure to file foreign bank account report Form TDF 90.22.1 will apply, that is, up to 50% penalty based upon the account value of the foreign account for delinquent FBAR filings computed for each year beginning with the 2007 filing year.

Under the amnesty program, any taxpayer who successfully completes the program requirements will not be criminally prosecuted. Amnesty was only available through October 15, 2009. Taxpayers considering the amnesty program must understand that they may be audited by the IRS to determine if they owe any other taxes to the government over and above the tax and penalty liabilities reflected on amended returns and delinquent FBAR reports. This is true even if they are granted reflief from criminal charges and pay the taxes, penalties and interest accruals associated with amnesty program filings.

Taxpayers should not attempt to enter any voluntary IRS disclosure without first seeking the advice of an attorney experienced in handling criminal tax matters. The key to receiving amnesty from criminal prosecution under the program is providing complete, accurate and honest information to IRS criminal investigators - as well as to IRS Revenue Agents should there be an examination of their returns. An oversight or failure to provide required information could result in criminal charges such as making false statements or providing false documents to a government agent.

WHAT ABOUT TAXPAYER DISCLOSURES AFTER OCTOBER 15, 2009?

IRS interest in wealthy Americans suspected of offshore tax evasion will continue for many years. IRS summons are likely to be issued to other foreign banks utilized by Americans. Switzerland and Luxembourg cooperation treaties have already been amended. Initial UBS disclosures to the Internal Revenue Service will not fully take place until the end of 2010. Additional disclosures will be made in the years following. Other Swiss banks are agreeing to disclose their account records. IRS efforts are multi year and multi country.

In an IRS Newswire released on August 19, 2009 (IR-2009-075) the IRS disclosed that the agreement with the Swiss Confederation requires long term Swiss compliance with the treaty exchange information program. The agreement involves a number of legal actions including that "The Swiss government has agreed to review and process additional requests for information for other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case."

IRS Commissioner Doug Shulman's press remarks on August 19, 2009 indicated that the UBS agreement is "an historic development in our international efforts and it helps build a solid foundation for addressing future offshore issues. This is a sound agreement that is good for the nation's taxpayers. The agreement puts in place an apparatus for the IRS to obtain information on thousands of offshore accounts. Further, the Swiss government is prepared to work with us regarding similar U. S. requests, if any, involving other institutions." Shulman's press remarks included the following comments: "The IRS wants to be clear on another point. International tax evasion will continue to be a top priority. This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area. International enforcement is a top priority . . . ."

In an earlier statement by IRS Commissioner Doug Shulman, on March 26, 2009, he stated that the "IRS goal has always been to obtain tax compliance from taxpayers hiding assets offshore." The IRS goal is to have a predictable set of outcomes to encourage people to come forward and take advantage of IRS voluntary disclosure practices.

There is a clear line between those individual taxpayers who voluntarily came forward with offshore information and those who continue to avoid their tax obligations. People who come in voluntarily, stated Commissioner Shulman, will continue to obtain a fair settlement. The implication is better treatment for taxpayers who voluntary come forward even after the October 15, 2009 amnesty deadline. An IRS knock on the door of a taxpayer who has not made a voluntary disclosure will mean a criminal investigation and maximum income tax and FBAR penalties.

The IRS has long had a voluntary disclosure program which historically has obviated thousands of criminal prosecutions. See Internal Revenue Manual 9.5.11.9 (Tax Crimes - General).

Post October 15, 2009 voluntary disclosures of UBS accounts or other offshore accounts in Switzerland or different tax havens will not automatically guarantee immunity from prosecution; however, a post amnesty voluntary disclosure does not necessarily result in an IRS criminal prosecution. Over the years this office has seen that taxpayer voluntary disclosure of past tax avoidance/evasion normally does not result in criminal prosecution. Usually a criminal recommendation does not go forward from Internal Revenue Service criminal investigators. Those cases that go forward based upon an IRS criminal prosecution recommendation have a history of being rejected by IRS District Counsel, the local United States Attorneys Office and/or the Department of Justice. Having said that, the IRS is posturing that offshore confessors post October 15, 2009 will typically face harsher civil penalties than amnesty taxpayers who made a timely voluntary disclosure (READ: 75% civil fraud penalty on unreported income). This writer also anticipates stiff civil penalties for late filing of required Forms TDF 90.22.1 (filings related to foreign bank accounts).

IRM 9.5.11.9(4) reflects general IRS voluntary disclosure guidelines outside the UBS amnesty program:

"A disclosure is timely if it is received before:

a. The IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;

b. The IRS has received information from a third party (e.g., informant, or other government agency, or the media) alerting the IRS to a specific taxpayer's non-compliance;

c. The IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or

d. The IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena)."

In general, the Internal Revenue Manual encourages/requires that Special Agents of the IRS Criminal Investigation Division consult with IRS attorneys on voluntary disclosure issues. However, taxpayers best make their voluntary disclosure before the Swiss government turns over account documentation on a rolling basis over coming months. The IRS is likely to open a taxpayer criminal investigation the week of receipt of UBS bank account information.

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Cincinnati Tax Lawyer
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Cincinnati, OH 45242

Phone: (513) 563-4555
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