IRS cracking down on offshore tax shelters: notably UBS and Swiss Bank Accounts

The Department of Justice yesterday released a statement about UBS client, Steven Michael Rubinstein, a chartered accountant living in Boca Raton, Fla., who pleaded guilty to filing a false tax return for tax year 2004. Rubinstein was charged with filing a false tax return that intentionally failed to disclose the existence of a Swiss bank account maintained by UBS of which he was the beneficial owner and failed to report any income earned on that account.

The IRS Commissioner Doug Shulman says combating offshore tax evasion by wealthy taxpayers continues to be one of the IRS top priorities.

The UBS indictment and investigation highlights the IRS' commitment to vigorously pursuing those who illegally hide their money offshore as well as the financial institutions which help them.

In December 2007, a billionaire California real estate developer (Igor Olenicoff) and his banker (Birkenfeld) pleaded guilty to tax crimes. With evidence from this case, U.S. prosecutors have been able to penetrate the veil of financial invisibility that Switzerland guards as a national treasure.

To avoid immediate prosecution, UBS, which is Switzerland’s second- largest bank by stock market value, agreed in February to pay the U.S. $780 million. UBS also renewed a pledge to stop unlicensed recruiting of customers in the U.S. and agreed to cooperate with investigators during 18 months of probation. The bank admitted in court that it had helped American clients dodge taxes from 2000 to 2007.

The bank did provide information on more than 250 customers -- an unprecedented breach of Switzerland’s bulwark of secrecy.

The IRS is suing UBS in federal court in Miami to get the names of 52,000 American account holders who may have broken U.S. tax laws. This is causing a battle between UBS, Swiss governmetn and the US. The bank said in April 30 court filings that the U.S. efforts would force bank employees to violate Swiss criminal laws barring disclosure of secret account information. The Swiss government says the U.S. is trampling on its sovereignty.

If the bank fails to convince a federal judge that it shouldn’t turn over the names to the IRS, the court can fine UBS for civil contempt. The Justice Department, under the deferred- prosecution agreement, could seek criminal indictment of the bank, says tax attorney Robert Fink of Kostelanetz & Fink LLP in New York.

Since April 2, prosecutors have charged two UBS clients in Florida with filing false tax returns. Hundreds of UBS clients in the U.S. may face prosecution and Edward Robbins Jr., a California, tax lawyer who represented Olenicoff, said “this may be the biggest criminal tax investigation ever because of the dollars involved coupled with the vast number of criminal defendants, both at the UBS level and the American account holder level.”

U.S. prosecutors say UBS earned $200 million a year managing $20 billion in assets for American customers.

The Justice Department last week denied allegations they would drop the lawsuit against UBS and we will know more on June 30, when the Department said they would file a brief seeking an enforcement of the summons.

Sources:
Bloomberg News / Reuters