07 Jul Switzerland Approves UBS Agreement
I have always been impressed with the Swiss government’s longstanding capacity for discretion – much like the governmental equivalent of a friend that can keep a secret. Unfortunately, as we have been discovering, there are some very good reasons that Swiss account holders have demanded confidentiality, and Switzerland has finally had to cough up its secrets to the US government.
The IRS has had a two pronged approach to bringing foreign income back into the US tax net. First, as we blogged back in September of 2009, the IRS’s foreign bank account voluntary disclosure program offered partial amnesty for taxpayers with unreported income from undisclosed foreign bank accounts. Close to 14,000 taxpayers participated in that program and, in the last few weeks, IRS agents have initiated contact with participating taxpayers to settle these matters in an accelerated fashion. It was a good program that resulted in getting a large number of foreign accounts into the system. We advised taxpayers to take full advantage of the program, knowing that there would be more to come for persons with offshore accounts, and that it would not be pretty.
On a parallel track, the United States vigorously pursued Swiss banking giant, UBS, for its involvement in facilitating unreported offshore accounts, culminating in an August 19, 2009 agreement obligating UBS to disclose 4,450 names of U.S. accountholders to the IRS. On June 3, 2010, after a long, drawn-out process, and much debate within the Swiss government concerning Switzerland’s bank secrecy laws, the upper house of Switzerland’s parliament approved the agreement. UBS has since been notifying the affected U.S. accountholders, and the names of 4,450 UBS accountholders could be in the possession of the IRS by the end of August, 2010. This will likely be a serious problem for anyone who opted not to participate in the 2009 voluntary disclosure program, as the IRS has an entire arsenal of penalties, both civil and criminal, at its disposal.
Some advisors, including us, have counseled their clients to voluntarily disclose to the IRS outside of the 2009 voluntary disclosure program. Voluntary disclosures are generally thought to protect the disclosing taxpayer from criminal prosecution, and depending on the facts, may also warrant more lenient penalties from the IRS. Of course, the fact of disclosure is itself a giant red flag, so the decision cannot be made lightly. This is one area of tax practice where the quality of the tax advice will be heavily dependent on the judgment and experience of the advisor. Stay tuned for the inevitable fallout from the actions of the ill advised.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.