Articles Posted in Tax Fraud

UBS AG, has agreed to pay $780 million in order to avoid prosecution for conspiring to commit tax fraud in violation of 18 USC 371. UBS entered into a deferred prosecution agreement. The exhibits are here and here. As part of the deferred prosecution agreement, UBS admitted that it participated in a tax fraud scheme, and that UBS bankers facilitated U.S. taxpayers in establishing accounts at UBS in a way intended to conceal the U.S. taxpayers’ ownership in the accounts. It appears that the amount of the settlement might have been higher, but for the current financial crisis, and the input of the Federal Reserve Bank of New York.

Most importantly, for U.S. clients concerned about their own exposure for tax evasion, or tax fraud, UBS agreed to provide the identities and account information of some of its United States clients. The exact scope of the disclosure is set forth in a letter between UBS and the Department of Justice, but that letter is under court seal. Ominously, the information filed against UBS referred to some of the 20,000 U.S. account holders as “unindicted co-conspirators.”

It seems clear that not all of the names of U.S. account holders are being turned over. The agreement does not end the summons enforcement action pending against UBS requiring it to disclose offshore bank accounts of U.S. clients. Indeed, the agreement provides that UBS is not prohibited from continuing to assert its defenses in the summons enforcement proceeding. There has been some speculation that UBS is only turning over the names of about 250 clients that are known to have committed “tax fraud or the like” under Swiss law.

According to a report on CNBC.com the Senate Permanent Subcommittee on Investigations will be holding further hearings on the Internal Revenue Service (IRS) attempts to obtain the names of thousands of UBS clients who may have committed tax evasion through the use of Swiss Bank accounts. The hearing is scheduled for Feb. 24th, and the Subcommittee will announce on Feb. 20th the names of the witnesses who have been asked to testify.

As we noted in a previous post, in June of last year a judge in Miami, ordered UBS to turn over a list of its American clients who held offshore accounts at UBS. Although UBS said it would cooperate almost 8 months later the records have not been turned over. Apparently the IRS is trying to ratchet up the pressure on UBS to turn over its records.

Taxpayers who have Swiss bank accounts, whether at UBS or elsewhere are well advised to consult with a knowledgeable tax attorney to determine whether or not they should consider turning themselves in to the IRS pursuant to its voluntary disclosure program in the hope of avoiding tax fraud or tax evasion charges.

According to a report in the Wall Street Journal the Internal Revenue Service (IRS) now believes that the number of UBS clients who hold offshore accounts is higher than the 17,000 originally reported. The IRS believes that UBS helped these clients commit tax fraud by helping them hide their income from the IRS. According to the article UBS is in talks with the Department of Justice to avoid possible felony indictments by paying a penalty in the rage of 1.2 billion dollars.

UBS become front page news when a former UBS executive told the IRS that UBS routinely advised its customers that they weren’t required to disclose their Swiss bank accounts to the IRS. Of course that was a bad bit of advice which could expose people to tax evasion and related charges since U.S. citizens are required to make a disclosure of their offshore bank accounts in two places. First, on Schedule B of their Form 1040 in response to question 7a “At any time during 2008, did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” Second, holders of foreign bank accounts must report their existence on Form TDF 90-22.1.

In July 2008 a District Court judge in Miami granted an IRS summons to turn over the records with the names of US taxpayers who requested their accounts be kept hidden from the IRS. Clearly such records would be part of a chain of evidence that the IRS could use to bring tax evasion charges. UBS has yet to turn over the records, and according to the Journal the IRS is considering whether to ask the judge for an additional order forcing the turnover of the records.

The U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations released its report Tax Haven Banks and U.S. Tax Compliance detailing widespread facilitation of tax evasion by UBS and LGT. LGT Bank, a leading Liechtenstein financial institution that is owned by and financially benefits the Liechtenstein royal family.

According to the report LGT allowed U.S. citizens to maintain billions of dollars in assets in accounts not disclosed to U.S. tax authorities; advised U.S. clients on the use of complex offshore structures to hide their ownership of assets, and arranging client accounts and assets to avoid reporting requirements that would otherwise disclose the accounts and assets to U.S. authorities. According to the report millions if not billions of dollars of income may have gone unreported, resulting in massive tax fraud. One technique was to set up a Liechtenstein trust to disguise the true ownership of the funds. Under U.S. tax law, the IRS generally views Liechtenstein foundations as foreign trusts.

U.S. persons with an interest in a foreign trust, including a Liechtenstein foundation, are required to disclose the existence of the trust to the IRS by filing Forms 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) and 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner). Form 3520 is due on or before the 90th day (or such later day as the Secretary may prescribe) after a reportable event. Internal Revenue Code § 6048. Form 3520-A must be prepared by the trustee and provided to trust beneficiaries to be filed with their returns by March 15 of the following year (assuming the trust has a calendar year-end). Trustees must supply copies of the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement to the U.S. owners and U.S. beneficiaries by the same deadline. While the Internal Revenue Code requires the trust to file the form, it also makes the U.S. owner responsible for ensuring that the form is filed and the required information furnished to U.S. owners and U.S. beneficiaries. The reporting obligations under Forms 3520 and 3520-A must be met even if a foreign government can impose penalties for disclosing financial information. See Internal Revenue Code, § 6677(d)(imposing tax penalties for failure to file a form 3520 or 3520-A even if a foreign jurisdiction would impose a civil or criminal penalty for disclosure). For more on the tax penalties for not reporting ownership of offshore accounts see our prior post.