irs aggressively pursuing offshore accounts

8/14/2019 Irs Aggressively Pursuing Offshore Accounts

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IRS Aggressively Pursuing Off Shore Accounts2008

By Robert E. McKenzie, Tax Attorney

Arnstein & Lehr, LLPOn July 1, a federal judge in Miami issued an order authorizing the Internal Revenue Service (IRS) torequest information from Zurich, Switzerland-based UBS AG about U.S. taxpayers who may be using

Swiss bank accounts to evade federal income taxes.[1] The order, authorizes the IRS to serve what isknown as a John Doe summons on the bank. The IRS uses a John Doe summons to obtain

information about possible tax fraud by people whose identities are unknown. The John Doesummons approved by the court directs UBS to produce records identifying U.S. taxpayers withaccounts at UBS in Switzerland who elected to have their accounts remain hidden from the IRS. It ishighly likely that the IRS will be successful in its efforts to secure the account information from UBS.Based on a statement submitted to the court by former UBS banker Bradley Birkenfeld, UBSemployees assisted wealthy U.S. clients in concealing their ownership of assets held offshore bycreating sham entities and then filing IRS forms falsely claiming that the entities were the owners ofthe accounts. According to Birkenfelds court statement, UBS had approximately $20 billion of assetsunder management in undeclared accounts for U.S. taxpayers.

Voluntary DisclosureThe court order could lead to the disclosure of thousands of U.S. residents who have failed to reportUBS accounts. U. S. taxpayers who have banked with UBS should immediately seek the advice of acompetent tax attorney. The IRS has a voluntary disclosure policy that may allow UBS clients toavoid harsh penalties and/or prosecution. The central concept of the voluntary disclosure policy isthat the taxpayer must come forward and self identify before the IRS opens an investigation of thatperson. Before approaching the IRS for a voluntary disclosure a competent tax attorney will reviewall appropriate facts and circumstances with a client to assure that the she qualifies for the program.After a review of the facts, in most matters the tax attorney will then approach the IRS to negotiateanonymously on behalf of the taxpayer and only upon agreement will the her identity be disclosed tothe IRS.

The LawThe law requires a United States taxpayer to report all financial accounts in a foreign country if thetotal value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure toreport a foreign account can result in a penalty of up to 50 percent of the amount in the account at

the time of the violation[2] or prosecution..


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IRS CrackdownGiven its success in this case it is inevitable that the IRS will step up its efforts to find Americansutilizing tax haven banks. Since September 11 the U. S. Financial Crimes Enforcement Network hasdeveloped a coordinated program to find money laundering, foreign banking activity, and tax evasion.In most white collar crime cases the Justice Department offers plea bargains to individuals likeBirkenfeld in return for cooperation in charging others involved in illegal activity. Therefore withincreased resources being allocated to seeking out foreign bank activities by Americans we can

anticipate will the first of many bankers who cooperate to reduce their potential jail time.

BackgroundOn June 19 Birkenfeld pleaded guilty today to conspiring with an American billionaire real estatedeveloper, Igor Olenicoff, Swiss bankers and his co-defendant, Mario Staggl, to help Olenicoff evadepaying $7.2 million in taxes by assisting in concealing $200 million of assets in Switzerland and

Liechtenstein.[3]

During the plea, Birkenfeld admitted that between 2001 and 2006, while he was employed as adirector of UBS, he routinely traveled to and had contacts within the United States to help wealthyAmericans conceal their ownership in assets held offshore and evade the payment of taxes on the

income generated from those assets.According to statements and documents filed with the court, Birkenfelds services to American clientsviolated a 2001 agreement that the UBS entered into with the United States. to identify anddocument any customers who received reportable U.S. source income or would withhold andanonymously pay a 28 percent withholding tax. This agreement was a major departure from historicalSwiss bank secrecy laws under which Swiss banks concealed bank information from the IRS.$20 Billion In AssetsIn evidence provided by Birkenfeld to the court, managers and bankers at the firm, includingBirkenfeld, assisted the U.S. clients in concealing their ownership of the assets held offshore by

helping these wealthy customers create nominee and sham entities. This was done to prevent therisk of losing the approximately $20 billion of assets under management in the United Statesundeclared business.

The SchemeBirkenfeld admitted that he and additional private bankers at UBS advised U.S. clients to place cashand valuables in Swiss safety deposit boxes, and purchase jewels, artwork and luxury items usingthe funds in their Swiss bank account while overseas. Additionally, they advised the clients tomisrepresent the receipt of funds from UBS in the United States as loans from the bank; destroy alloff-shore banking records existing in the U.S.; utilize Swiss bank credit cards that they claimed couldnot be discovered by U.S. authorities; and file false U.S. individual income tax returns that omitted

income earned by the clients and fraudulently misrepresented that the clients did not have aninterest in and signature authority over accounts held offshore.Commissioner CommentAs an indicator of the importance of this case IRS Commissioner Douglas Shulman said on Julne 19,I believe this case will send a strong signal to anyone hiding money in offshore bank accounts toavoid paying the taxes they should. The IRS will pursue people using offshore accounts in this

manner as well as financial advisers and others who orchestrate these tax fraud schemes,.[4]

Final Comment


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In summary U. S. taxpayers who may have dealings with UBS should immediately seek the advice ofcompetent tax counsel to determine their best options before the IRS successfully finds them byother means.

[1] In the Matter of the Tax Liabilities of John Does, United states Taxpayers, S.D. Fla., No. 08--21864-MC-LENARD/GARBER, order entered 7/1/08

Negligent Violation 31 U.S.C. 5321(a)(6)(A) 31 C.F.R. 103.57(h)., Non-Willful Violation , 31 U.S.C. 5321(a)(5)(B), Willful- Failure to File FBAR or retain records of account, 31 U.S.C. 5321(a)(5)(C)

31 U.S.C. 5322(a), and 31 C.F.R. 103.59(b) for criminal. The penalty applies to all U.S. persons. [2]

[3](United States v. Birkenfeld, S.D. Fla., No. 08-CR-60099-ZLOCH, plea entered6/19/08

[4] Department of Justice Press Release dated 6-19-08.

Changes last made on: 07/15/2009 05:47:00 PM

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