Tax dodgers scramble to come clean amid crackdown

The US and Swiss governments have announced a court settlement in efforts by the IRS to force UBS to turn over the names of some 52,000 Americans.

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August 17, 2009 10:43
4 minute read.
Tax dodgers scramble to come clean amid crackdown

ubs 224.88. (photo credit: AP)

A deal with Switzerland settling US demands for the names of suspected tax dodgers from a Swiss bank has a lot of wealthy Americans with offshore accounts nervously running to their tax advisers - and the Internal Revenue Service. "They are very frightened," said Richard Boggs, chief executive of Nationwide Tax Relief, a Los-Angeles-based tax firm that specializes in clients with tax debts exceeding $100,000. "You have the super-rich who are not used to being pushed around, and they are finding themselves in unfamiliar territory." The US and Swiss governments announced a court settlement last week in efforts by the IRS to force Zurich-based UBS AG to turn over the names of some 52,000 Americans believed to be hiding nearly $15 billion in assets in secret accounts. Justice Department and UBS lawyers told a federal judge in Miami in a brief conference call Wednesday they had initialed a final deal. But they did not disclose any details, such as how many of the 52,000 names sought by the IRS will be revealed. Even before the settlement, the high-profile case - coupled with other US efforts to go after Americans hiding undeclared assets - has scared hundreds of tax dodgers to turn themselves in. Boggs said his firm has been taking on 100 new cases a month, a big increase over previous years. Peter Zeidenberg, a litigation partner at the law firm DLA Piper in Washington, said he, too, is he seeing more people with undeclared assets seeking information about their legal options. His advice: "I don't think you have much of a choice but to come forward... I think the landscape is permanently changed." The IRS - the federal tax-collection agency - long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution. In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. IRS Commissioner Doug Shulman said the response has been unprecedented. He would not say how many people have applied so far. But the IRS said 400 people applied to voluntarily disclose undeclared assets in a single week in July, compared with fewer than 100 applications all last year. The amnesty program, which ends September 23, is part of a larger effort by federal authorities to crack down on international tax evaders. "Each time someone walks through the door with a disclosure, we get more information," Shulman said. "We get more information about other people. We get more information about other financial institutions. If people have been hiding assets in the past, they should be nervous, and they should be a lot more suspect about doing it in the future." The US recently reached agreements with several countries, including Luxembourg and Switzerland, to share more tax information in the future, just as the IRS is strengthening its enforcement ranks. President Barack Obama, in his proposed 2010 budget, asked Congress to pay for 800 additional agents, examiners and lawyers to go after people who hide money overseas. Obama also wants Congress to require overseas financial institutions doing business in the US to share more information with the IRS. Earlier this year, UBS admitted assisting US citizens in evading taxes as part of a deferred-prosecution agreement with the Justice Department. UBS agreed to disclose the names of about 300 American clients and pay a $780 million penalty. The IRS subsequently filed its case seeking the names of 52,000 additional US taxpayers believed to be hiding assets in UBS accounts. So far, four UBS customers whose names were given to US authorities under the prior agreement have made deals to plead guilty to tax charges in federal court. "The UBS case, the agreements we are signing, the legislative proposals and the enforcement efforts are all meant to send one message, which is that if you owe tax to the US, we are going to use every tool we have available to get that," said Michael Mundaca, acting assistant treasury secretary. Boggs, the tax adviser, said it would be risky for a wealthy tax dodger to wait to see if the government's stepped up efforts continue, and his firm usually recommends a "strategic surrender" to the IRS. "We basically are waving a white flag and telling the IRS that we have every intention of resolving this issue in the mutual best interest of the government and our client," he said. "Historically, the best outcomes that we have been able to negotiate have always involved good faith from the taxpayer," Boggs said. "And good faith means getting to the IRS before they get to you."


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