UBS Reaches Agreement with USA on Unreported Accounts

Tuesday, August 4th, 2009 at 3:04 PM

On July 29, the United States and Switzerland reportedly agreed to settle criminal charges brought by the U.S. Department of Justice against Swiss banking giant UBS. While details of the settlement haven’t been released, it appears likely that the Department of Justice will receive account details of at least 5,000 American clients of the bank. The IRS was seeking account details of many times this number—52,000 depositors. It’s not clear which accounts will be turned over. According to the existing U.S.-Switzerland tax information exchange treaty arrangements, U.S. authorities must present evidence of “tax fraud” committed by a specific identified taxpayer in order for Switzerland to release the information. Tax fraud is a more serious offense than ordinary tax evasion: it means taking affirmative steps, such as submitting false documents, to avoid disclosing an offshore account. It seems highly unlikely that the United States would be able to achieve this burden of proof for this many taxpayers. A new treaty—which Swiss voters must approve via referendum to go into effect—lowers the burden of proof from “tax fraud” to “tax evasion.” However, U.S. authorities still must present evidence of tax evasion from specific taxpayers in order to receive information from Switzerland. In this case, the only basis U.S. authorities have to support their demand for disclosure of account data is a 2004 internal UBS document stating that U.S. depositors held 32,000 accounts with cash and 20,000 with securities with a total value of US$14.8 billion. Based on this slim evidence, it will be very interesting to see what rationale Swiss authorities came up with to satisfy U.S. demands, while upholding Swiss law. Unless the IRS has substantially more information than this, it again seems unlikely that the IRS could identify 5,000 or so of these individuals suspected of tax evasion. Under whatever veneer of legality the data transfer occurs, it probably won’t happen until after Sept. 23, the deadline for the IRS “voluntary disclosure” program that U.S. taxpayers with unreported offshore accounts to pay taxes and reduced fines in hopes of avoiding criminal prosecution. If you have an unreported offshore account at UBS—or any other offshore financial institution, my recommendation is to contact a criminal tax attorney immediately to determine if you should take advantage of this program. My colleague Bob Bauman has written why you might NOT want to enroll in it—but in any event, you need professional advice to determine your best option. Copyright © 2009 by Mark Nestmann

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UBS Reaches Agreement with USA on Unreported Accounts

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