In the aftermath of the IRS UBS settlement, a pertinent question arises – how secret are Swiss bank secrecy laws? Once the unquestionable bastion of confidential banking, now with Swiss bank UBS revealing details of 4,450 of its US account holders suspected of tax evasion to the IRS, the secrecy in Swiss banking is no longer a given. Doug Shulman, IRS Commissioner noted that the IRS UBS agreement “blows a big hole in bank secrecy”. Click here to watch or read more information on IRS Back Taxes.
In reality, complete secrecy is a myth. There are always circumstances that justify releasing private banking information. For instance, if the bank realizes that one of its accounts is being used to fund terrorist or illegal activities, it is duty-bound to report it to the relevant authorities. But while extreme crimes such as terrorism, human trafficking or drug pushing are crimes serious enough to warrant breaking bank secrecy laws in Switzerland, tax fraud is not.
Whether the settlement will affect the Swiss banking industry remains to be seen.
In events leading up to the settlement, a former UBS private manager, Bradley Birkenfeld in 2006 exposed the bank’s undercover ways of getting wealthy US clients to deposit their assets with the bank and in doing so, evade taxes on those assets. As these revelations came to light, the IRS took the bank to court. As a result, UBS agreed to reveal information on some 300 suspected tax evaders among its clientele to the IRS and pay a fine of $780 million. The agency has since been investigating about 150 of these depositors.
Shortly after, the IRS further pressed the bank to disclose about 52,000 more names of suspected tax dodgers. The matter escalated into a full-blown diplomatic row between the US and Swiss governments. Finally, UBS agreed to disclose the details of the suspected bank depositors to the Swiss government through a review panel. The Swiss government then will in turn decide which part of these details to hand over to the US government in a treaty request. This is to come up to 4,450 account holders most likely to be avoiding taxes. UBS will inform these depositors that their names are being handed over.
In the meantime, the IRS has started a Voluntary Disclosure program that allows any taxpayer to disclose his assets in offshore accounts before being penalized. Such an action will result in penalties, interest charges and back taxes and avoidance of criminal charges. The program expires September 23rd.
As far as US taxpayers are concerned, the question is whether this saga will discourage tax evasion. At this point in time, it is anyone’s guess.
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Law Offices of Darrin T. Mish, P.A.: Tax Attorney