Opening a Can of Worms

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In a highly-publicized spat between the IRS and UBS bank of Switzerland over information on some 52,000 suspected Americans using their bank accounts to avoid taxes, the Swiss bank finally agreed to release an undisclosed number of names among the 52,000. This has surely put a severe dent in the whole idea of using UBS bank accounts as tax havens. But what about other Swiss banks? And how about other European banks? Do they also operate according to the same kinds of bank secrecy laws that Swiss banks do?

The answer lies in the information held by some of these clients of UBS. Since the agreement that ended the IRS UBS dispute, many of these suspected tax cheats have come forward under an IRS Voluntary Disclosure program that offers reduced penalties and avoidance of jail time to those who fess up before they are cornered by the IRS. The six month amnesty program that started in March ends September 23rd has seen a huge spike in the number of those who responded. Doug Shulman, the IRS Commissioner said that in one week of July alone, 400 people stepped forward to make known their undeclared assets for tax purposes compared to 100 people the whole of last year.

Under the program, respondents must disclose all other banks where they hold accounts also besides UBS. From the hundreds of UBS bank clients who have come forward thus far, the IRS has found out the names of other banking institutions in Switzerland and Europe in which wealthy Americans have been stashing their cash. Some of the banks named were Credit Suisse Group AG, Julius Baer Holding AG, Zurcher Kantonalbank and Union Bancaire Privee also known as UBP, all of Switzerland. Mere disclosure does not mean any wrongdoing has been committed. The wrong committed by UBS was that they intentionally assisted their clients in creating a web of structures so that the money deposited would avoid detection by tax authorities.

According to Mr. Milan Patel, a tax lawyer at Withers LLP in Geneva, several Swiss banks are encouraging American account holders to divulge their information under the amnesty program. These banks want to avoid being seen as helping American taxpayers avoid taxes.

Besides the names of other banks, the disclosures have also revealed the existence of a group of other firms that helped US clients to set up complex financial structures to evade taxes. These firms, sometimes known as promoters, comprise of accounting and other banking-related firms.

By next Wednesday, government officials of both the US and Switzerland are expected to release official details of the settlement. Lawyers following the developments are waiting to see if the settlement will provide means for future disclosure of banking information from Swiss banks to the IRS.

Check out more IRS Reports stories by clicking that link.

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