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Swiss U.S. Agreement Looming

By Michael B. Nelson, Esq. - Email Editor

Date : August 20, 2009

Dear Valued Reader,

Late last week the Internal Revenue Service, Department of Justice and the Swiss government publicly announced an agreement in the civil case involving UBS. The details of this agreement are expected to be made public this Friday. The announcement did disclose that names of UBS account holders would be provided to the Internal Revenue Service and the Department of Justice. The pivotal questions are how many names and what is the basis for these names to be disclosed.

However, details of the agreement are expected to include:

1.The IRS and DOJ will receive substantially all of the accounts that they were interested in when it initiated the John Doe summons against UBS.

2.The IRS will submit a treaty request to the Swiss government describing the accounts for which it is requesting information. The Swiss government will then direct UBS to initiate procedures for turning over this confidential customer information.

3.The IRS will receive wide ranging information on varying types of accounts including but not limited to: bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts.

4.The U.S. Government will retain rights, subject to the agreement resulting in lower than expected number of taxpayers’ names and related information, to seek appropriate judicial remedies, including resuming actions to enforce the John Doe summons.

5.The judicial enforcement of the John Doe summons will be dismissed. While this enforcement motion will be withdrawn, refer to item 4 above, the underlying summons remains in effect.

6.Upon receiving the treaty request, the Swiss government will direct UBS to notify account holders that their information is included in the IRS treaty request. These notifications will be sent on a rolling basis beginning as soon as next week and continuing for several months. Receipt of Notice will not, by itself, preclude the account holder from participating in the IRS Voluntary Disclosure Program.

Although not part of the above agreement, it is expected that the Swiss Government will review and process additional IRS and DOJ requests for information for other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.

Switzerland's top-diplomat Michael Ambuehl reinforced this belief that the agreement would not violate Swiss law. "The Swiss legal system is maintained, because the U.S. has promised to act on the basis of the current agreements and to ask for legal assistance again," said Ambuehl, who is State Secretary in the Foreign Ministry. Swiss Justice Minister Eveline Widmer-Schlumpf, whose Ministry is in charge of the negotiations together with the Foreign Ministry, noted that both governments still had to agree on important details. "There are still details to be cleared, which are of importance to us," she said. "Should we not reach an agreement, which is in line with our Swiss laws, a deal would be put into question."

The Internal Revenue Service Commissioner, Shulman, would not divulge whether the IRS has other investigations open, but noted that the IRS was in possession of several leads obtained from the IRS Voluntary Disclosure Program. "The days of hiding an asset overseas are days that clearly are eroding," Shulman said. Many of these leads were probably the result of American taxpayers who have decided to come forward under the tax-evasion amnesty program which allowed the IRS to question those Americans to, amongst a massive list of questions, to identify other Swiss and European banks where their accounts are held.

Among the banks named in the Voluntary Disclosure Program are Credit Suisse Group, Julius Baer Holding and Union Bancaire Privee. Note: the disclosures of these banks are not an indication that the banks are suspected of any malfeasance or that they promoted policies similar to UBS for Americans evading U.S. taxes.

Author’s Comments:

Initially, the IRS was standing firm in its position that UBS would provide the IRS with 52,000 names of American bank account holders. Now, the IRS is postured to accept between 4,000 to 5,000 names, less than 10% of the number of names first expected. In addition, should those whose name will be released find this objectionable, they are still provided judicial recourse in the Swiss courts. How an objection filed with the Swiss courts will be heard or decided after judicial determination on each person’s facts and circumstances. However, a Swiss court filing will delay detailed information from being disseminated to the IRS for an appreciable period of time which may allow the individual to be represented before the IRS for resolution before the actual case is heard by the Swiss courts.

Information provided to the IRS through this agreement will be reviewed for any violations, including both civil and criminal. Civilly, the IRS will seek to assess any additional tax, interest and an array of penalties; including the penalty for the willful failure to file a Foreign Bank Account Report, FBAR. This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed. As of this writing, the IRS and the Department of Justice have successfully prosecuted four United States customers of UBS whose information was provided to the IRS by UBS as part of the earlier Deferred Prosecution Agreement. It is very important to note that individuals whose information is obtained by the IRS through this agreement will, by longstanding U.S. Treasury policies, not be eligible for the Voluntary Disclosure Program.

It is paramount to remember that opening and maintaining a bank account outside of the United States is legal. What is not legal is to not declare bank interest income, and if your bank account exceeds US$10,000 at any time during the year, then being in compliance with filing the relevant FBAR. As U.S. citizens and Green Card holders, we are legally mandated to report all of our taxable income to the U.S. Treasury, from whatever source derived and from any location the world…worldwide taxation. Once you are in compliance with reporting taxable income to the IRS and filing FBAR, your foreign bank account is legal in the eyes of the IRS. Foreign bank accounts continue to have many advantages for individuals, corporations, trusts and estates. Do not overlook the tremendous advantages of these offshore bank accounts.

Please expect another article on this matter once the actual agreement is released to the public. At this point in time, both the U.S. and Swiss governments expect this agreement to be disclosed on Friday, August 21, 2009.

Until next time,

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