Dodging the UBS Bullet?

The IRS received 400 applications last week from United States citizens seeking to voluntarily disclose that they have money in offshore bank accounts. Four hundred applicants in one week is four times the amount of applicants who disclosed off shore account for all of last year.

The unprecedented increase in voluntary disclosure activity comes just a few weeks before a federal judge's hearing on the lawsuit filed by the United States against UBS, a Swiss company, to force UBS to reveal the identities of 52,000 Americans suspected of tax fraud. The hearing is set for August 3rd; the two governments requested a delay to allow time for settlement negotiations.

Secretary of State Hillary Clinton will meet with Swiss foreign minister Micheline Calmy-Rey tomorrow. Predictions are that UBS will agree to reveal a significant number of taxpayers, but the numbers range from 2,500 to 10,000 of UBS's targeted clients. Why so low? The United States government is likely only focused on those owing the greatest amount of taxes. Former US federal prosecutor Peter Hardy is quoted as saying that the IRS will see the effort as a failure if it receives less than 10,000 taxpayers' names. No one predicts all 52,000 taxpayers' identities will be revealed.

Switzerland has threatened to take control of the UBS client data if necessary to avert a breach in the country's bank secrecy laws. The Swiss government views the lawsuit as a challenge to Switzerland's sovereignty. Calmy-Rey states that the solution to the UBS matter must fall within Swiss law. She believes the US should respect the two governments' common interest in maintaining UBS's role as an employer within both countries.

The IRS, in the meantime, is making it as easy as possible for taxpayers with undeclared off shore assets to disclose them to the Service. The IRS has streamlined forms for application and extended the deadline for the leniency program until September 23rd. Most important, those who voluntarily disclose may qualify for a lower assessment.

Whistleblowers who know of taxpayers with undisclosed off shore accounts should contact KEMY to determine if they could qualify for a reward by reporting the undisclosed assets. Taxpayers who have been found to have hidden their assets can be forced to pay back taxes, penalties, and interest for up to six years.