Off-shore accountholders fear IRS tax penalties

Lawyers who handle tax disputes with the Internal Revenue Service have been inundated with calls from people who have off-shore accounts and are concerned their foreign banks will hand over information about their accounts to the IRS.

The Daily Record, a legal trade newspaper in California, reports that “Stoking the panic are two deals that UBS has reached with the U.S. government this year — the first in February — to hand over the account information of U.S. customers suspected of offshore tax evasion.”

The Record interviewed several lawyers who said the number of clients they are representing in voluntary tax disclosures as increased tremendously. One lawyer in California said he normally handles one or two voluntary tax disclosures cases a year; right now he has cases involving 140 clients on the West Coast alone.

IRS extends deadline for disclosing off-shore accounts

The Internal Revenue Service is extending the deadline for special voluntary disclosures by taxpayers with unreported income from hidden offshore accounts from Sept. 23 to Oct. 15.

Under special provisions issued in March, taxpayers who voluntarily disclose their hidden accounts possibly could receive less harsh civil penalties and avoid criminal prosecution. The IRS extended the deadline in response to requests from lawyers representing some of those who are willing to disclose offshore accounts. The IRS said it wouldn't allow any further extensions.

UBS, U.S. and Swiss reach deal on releasing names of possible tax evaders

UBS AG and the U.S. and Swiss governments have worked out agreements to settle a dispute over whether the Swiss bank should be forced to disclose the names of 52,000 wealthy American clients suspected of tax evasion, media outlets reported today.

UBS and the two governments have initialed agreements that will "take a little time to be signed in final form," Department of Justice lawyer Stuart Gibson told U.S. District Court Judge Alan Gold during a brief conference call on Wednesday, according to Reuters.

"For U.S. taxpayers it is going to be impossible to hide money in Switzerland and it is just a matter of time that this is the case also for Germans and Britons," Asher Rubinstein, a partner at law firm Rubinstein & Rubinstein, said in a separate story by Reuters.

See also:

- UBS Tax Lawsuit Settled by U.S., Swiss Governments (Bloomberg)

- UBS Welcomes IRS Settlement (Dow Jones Newswires)

Guernsey: low-tax jurisdiction or tax haven?

The New York Times ran an article today about Guernsey's popularity with rich Britons who take advantage of a loophole in British law that allows individuals to become nonresidents for tax purposes but remain citizens as long as they do not spend more than 90 days a year on British soil.

But British authorities are beginning to challenge the application of that loophole, the Times says.

The Times story cites an estimate by the Organization for Economic Cooperation and Development that "wealthy individuals hold about $6 trillion offshore, resulting in billions of dollars in lost tax revenue for their home countries annually."

Op-ed advocates maintaining strict Swiss financial privacy laws

The president of a Swiss research institution argues today in a New York Times op-ed that Switzerland should maintain its strict banking privacy laws despite pressure from other countries to change them.

". . . Our financial privacy laws are a foundation for individual dignity and basic property rights," says Pierre Bessard, president of the Liberales Institut. "We will not solve the global problem of tax evasion by punishing honest depositors and destroying Swiss traditions."

UBS, Swiss and U.S. reach agreement on info about U.S. clients

UBS and the Swiss government have reached an agreement in principle with the U.S. to give the U.S. information about some American UBS clients who the U.S. maintains are evading taxes through accounts with the Swiss bank, according to media reports.

Reuters reported that, "A U.S. government source told Reuters on Friday he expected UBS not to pay a fine as part of the deal and Swiss newspapers reported the settlement would include the bank handing over 5,000 names of U.S. clients holding secret Swiss accounts -- about 10 percent of the names Washington was after."

The Wall Street Journal reported that UBS and the Swiss government had resolved their concerns about violating Swiss bank-privacy laws by combing through UBS client files and identifying "enough potential fraud to make them willing to hand over information about certain accounts.

"Swiss laws don't provide confidentiality if people engage in fraudulent activities such as setting up accounts with shell companies that lack any real business substance," The Wall Street Journal said.

For-profit operations require not-for-profit hospital system to pay taxes

A state judge has ruled a healthcare provider system in Minnesota has to pay personal property taxes on office equipment in its corporate headquarters because it runs for-profit operations as well as not-for-profit hospitals, Modern Healthcare reports.

Details about the case involving ProHealth Care are found at Modern Healthcare. (Registration required.)

UBS fight with IRS convinces Swiss banks to drop U.S. clients

More ripples from the UBS-IRS standoff: Some Swiss banks reportedly aren't accepting or are cutting off U.S. clients out of concern the Internal Revenue Service might get into a similar fight with them over client account information as it has with UBS AG.

DowJones Newswires says it's "a sign that UBS AG's high-profile spat with the Internal Revenue Service is chipping away at Switzerland's private banking industry."

The IRS is after information about the UBS accounts of 52,000 U.S. citizens in a major tax-evasion probe, challenging not just UBS but Swiss bank-secrecy laws.

UBS fight with IRS convinces Swiss banks to drop U.S. clients

More ripples from the UBS-IRS standoff: Some Swiss banks reportedly aren't accepting or are cutting off U.S. clients out of concern the Internal Revenue Service might get into a similar fight with them over client account information as it has with UBS AG.

More ripples from the UBS-IRS standoff: Some Swiss banks reportedly aren't accepting or are cutting off U.S. clients out of concern the Internal Revenue Service might get into a similar fight with them over client account information as it has with UBS AG.

DowJones Newswires says it's "a sign that UBS AG's high-profile spat with the Internal Revenue Service is chipping away at Switzerland's private banking industry."

The IRS is after information about the UBS accounts of 52,000 U.S. citizens in a major tax-evasion probe, challenging not just UBS but Swiss bank-secrecy laws.

Legal tactic helps uncover offshore bank accounts

The Washington Post features an article today about a special trial attorney at the Internal Revenue Service who is credited with devising a legal tactic for uncovering the identities of offshore account holders.

John McDougal and his team at the IRS began in 2002 to use "John Doe" summonses on U.S. companies that process financial transactions for Americans holding questionable foreign accounts.

"The summonses were instrumental in helping the Justice department secure a settlement under which UBS admitted engaging in a scheme aiding U.S. clients hiding income from the IRS," the article says.

U.S. says it will continue case against UBS; plea agreement reached with UBS client

The Justice Department issued a statement denying it was considering dropping a high-profile case against UBS AG as reported in The New York Times.

The Justice Department is trying to force the Swiss bank to provide the names of 52,000 U.S. clients suspected of offshore tax evasion.

“While the department is always willing to consider settlement in any case, the suggestion that the department is planning to drop this suit is simply untrue," Justice Department spokesman Charles Miller said in an emailed statement, according to various media reports. "The department is continuing with the case against UBS and will file its brief asking the court to enforce the summons on June 30.”

At the same time, news agencies reported that Swiss Finance Minister Hans-Rudolf Merz said a deal was being discussed.

"I can confirm that efforts are underway," Merz told Swiss radio while in Berlin for a meeting of the Organisation for Co-operation and Economic Development.

In a separate development, a UBS client pleaded guilty to one count of filing a false tax return for tax year 2004. He also admitted that he had failed to file Reports of Foreign Bank and Financial Accounts (FBARs) disclosing his UBS bank account for years 2001 through 2007. Sentencing is set for Sept. 30.

Justice Department and UBS settlement reported likely

The New York Times reported today that the U.S. and UBS AG are likely to reach a settlement possibly as soon as mid-July over the Justice Department's efforts to get the names of 52,000 UBS clients who the U.S. says evaded taxes.

The Times said that Swiss government officials are considering giving the Justice Department filings made in Swiss court by extremely wealthy UBS clients, which would provide the names of some of the 52,000 UBS clients the Justice Department is investigating for tax evasion. The U.S. then would drop the case.

The agreement "would allow Switzerland to say that it has not breached its own secrecy laws," the Times said.

Hong Kong warns banks about tax evasion

The Hong Kong government has sent a letter to the top executives of all banks in the city warning them not to assist any clients in evading taxes, whether domestic or foreign taxes.

Karen Kemp, executive director of banking policy for Hong Kong, said in the letter that any banks that facilitate tax evasion could be prosecuted for money laundering.

"Further, it goes without saying that [banks] should not market themselves or schemes operated by them as being available for this purpose or incentivise their staff (whether through payments or bonuses or otherwise) to engage in such conduct," Kemp said.

 

The letter comes in advance of tax-information exchange treaties that Hong Kong expects to work out with the U.S. and other countries.

U.S, Switzerland agree to increase the exchange of tax information

The U.S. and Switzerland have reached an agreement to increase the exchange of tax information between the two countries, the U.S. Department of Treasury announced today.

The announcement comes as the IRS continues to pursue its investigation into tax evasion by wealthy U.S. citizens who are clients of Swiss banking giant UBS.

"This treaty will increase our ability to enforce our tax laws and will help bring an end to an era of offshore accounts and investments being used for tax evasion," Treasury Secretary Timothy Geithner said in a statement.

Official signing of the protocol is expected within a few months.

Prosecutors indict web of players involved in tax shelters

Seven people involved in setting up tax shelters sold to wealthy individuals were indicted by federal authorities, including the chairman and chief executive of BDO Seidman and a well-known tax attorney.

Those indicted include BDO Seidman executive Denis Field and tax attorney Paul M. Daugerdas, according to The New York Times.

The indictment said one shelter, known as SOS, was sold to 550 wealthy clients and generated $3.9 billion in bogus tax losses in two years, the Times reported.

The Times said the indictments are the largest crackdown on tax shelter promoters since mid-2005. At that time, the accounting firm KPMG admitted to wrongdoing over its work with questionable shelters and paid $456 million to the government to settle the case.

Congress considers bill to stop use of offshore tax havens

Congress is considering bills to curb use of offshore tax havens to evade U.S. taxes through a variety of measures.

Similar bills were introduced by Sen. Carl Levin (D-MI) and others in the Senate and U.S. Rep. Lloyd Doggett (D-Texas) and Rep. Rosa DeLauro (D-CT) in the House. Sen. Carl Levin (D-MI) filed an earlier version of the Stop Tax Haven Abuse Act in 2007, which then Sen. Barrack Obama supported. But the bill didn't pass.

"With White House leadership, we can finally win approval of our legislation to shut down offshore tax cheats," Doggett said in a statement. The steps proposed include treating foreign corporations managed and controlled in the United States as domestic corporations for income tax purposes

See Levin's statement about the legislation and The National Law Journal's report on the lobbying efforts. (Subscription required.)

Ouster of UBS executive may indicate cooperation with IRS

Swiss bank UBS has removed the top executive who was in charge of secret offshore accounts for wealthy Americans, The New York Times reported.

UBS's decision to place banker Martin Liechti on paid leave "raises questions about what kind of client information UBS may be preparing to provide to federal authorities, who are widening their scrutiny of American clients suspected of tax evasion and seeking to force the bank to turn over the names of 52,000 clients," the Times said.

IRS will trade leniency for information

Citizens who voluntarily pay taxes owed on offshore assets could escape criminal prosecution if they provide the Internal Revenue Service with information about the bankers who helped them hide their assets, according to The Wall Street Journal.

"A key part of the program, IRS officials said, is 'developing intelligence' on bankers, lawyers, accountants and others who help the rich hide assets from tax authorities," the Journal reported.

The Journal has posted the IRS guidelines on its website.

IRS tightens reporting requirements on offshore accounts

In another effort to hinder efforts to evade taxes on offshore accounts, the Internal Revenue Service is tightening certain reporting requirements.

The changes include requiring taxpayers to specify on the Foreign Bank Account Report the exact amount in offshore accounts. The Wall Street Journal reports that the IRS also is considering whether to implement changes to its "qualified intermediary" program with foreign banks that would better enable the IRS to ferret out accounts held by U.S. tax evaders.

White House task force formed to examine tax system

The Obama administration is looking for ways to reform the U.S. tax system and to aggressively reduce the tax gap, such as by attacking tax evasion.

Administration officials announced March 25 that a task force headed by former Federal Reserve Chairman Paul Volcker will study options and make recommendations to the President by Dec. 4. Volcker is now head of Obama's new Economic Recovery Advisory Board.

For comments by Office of Management and Budget Director Peter Orszag about the tax reform task force, see Reuters' story, Volcker panel to study tax reform, report to Obama.

Treasury report skeptical of "Son of Boss" settlement impact

Nearly one-fourth of the investors in the "Son of Boss" abusive tax shelter who participated in a settlement with the Internal Revenue Service failed to file their returns on time, paid their taxes late or failed to file returns at all, according to a report by the U.S. Treasury Inspector General for Tax Administration.

Investors in the tax shelter paid $3.8 billion in the settlement to avoid prosecution by the IRS. "Despite the success achieved, the Son of Boss settlement had little effect on investor filing and payment compliance," the report said.

The report, including the IRS response, is available on the U.S. Treasury website.

No federal contracts for delinquent taxpayers under U.S. bill

A bill has been introduced in Congress that would prohibit companies from getting federal contracts if they were delinquent in paying taxes.

"Studies by the Government Accountability Office have repeatedly shown that thousands of federal contractors owe over a billion dollars in unpaid taxes," says a press release issued by one of the bill's sponsors, Rep. Brad Ellsworth (D-IN). Under current law, applications for government contracts aren't affected by whether the applicant has failed to pay taxes.

The other sponsor of the bill is Sen. Claire McCaskill (D-MO). President Barack Obama c0-sponsored a similar bill last year in the Senate.

See Ellsworth's press release and the text of H.R. 572, the Contracting and Tax Accountability Act of 2009.

IRS willing to bend with hard economic times

The IRS announced this week that it is willing to allow some leniency for people who are facing major economic problems and are unable to pay taxes they owe.

For instance, the IRS said in its announcement:

• "IRS employees will have greater authority to suspend collection actions in certain hardship cases where taxpayers are unable to pay. This includes instances when the taxpayer has recently lost a job, is relying solely on Social Security or welfare income or is facing devastating illness or significant medical bills."

• "The IRS is allowing more flexibility for previously compliant individuals in existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship."

For more information, see the IRS press release: "IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options."

Ponzi scheme victims have tax options

The New York Times today explores tax options for those who lost money in Bernard Madoff's investment fund that is suspected to have been a Ponzi scheme:

• File amended returns and seek tax refunds. However, taxpayers generally can amend tax returns only for the three years prior to discovering a fraud, so this wouldn't do help long-term investors very much.
  
• Claim a theft-loss deduction equal to the amount of their original investment, plus any phantom interest or income obtained over all the years. This deduction can be used to offset ordinary income in the current year, or carried back three years or forward 20 years.
• If they do not have enough ordinary income to offset the deduction, they might be able to claim a refund, without interest, of the taxes paid on phantom income. But the IRS often contests those claims, The Wall Street Journal said.

See "For Victims of Schemes, the I.R.S. Can Be Flexible."