Tax Evasion by UBS and LGT Detailed in Senate Report.

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.

Owners of foreign bank accounts or trusts may wish to consider attempting to avoid tax fraud charges through the IRS’ voluntary disclosure program.

If you have tax problems contact the IRS tax attorneys at Brager Tax Law Group, A P.C.