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.)