Tax-Shelter Crackdown on Swiss Bank Accounts

President Obama’s budget plan calls for cracking down on offshore tax shelters to help raise revenue for a new program of increased benefits for the middle and lower class. The battle over tax shelters has already begun, as the government is pressuring foreign banks to lift privacy rules.

Fresh off a U.S. victory in which UBS agreed to make a $780 million settlement payment to the U.S. for a cross-border business that enabled hundreds of Americans to create fraudulent tax shelters, the U.S. is now going after 53,817 UBS secret Swiss bank accounts associated with suspected tax evasion. A Justice Department lawsuit filed recently in a Miami federal court alleges that U.S. customers failed to report and pay U.S. taxes on income earned in those accounts, which held about $14.8 billion in assets during the middle of this decade.

According to the lawsuit, Swiss-based bankers, who were trained to evade authorities, actively marketed UBS’s services to wealthy U.S. customers. UBS documents filed with the lawsuit show that UBS bankers violated U.S. law by coming to the United States to meet with clients nearly 4,000 times per year, targeting wealthy clients at UBS-sponsored sporting-events in particular, according to a Justice Department press release.

The lawsuit alleges that UBS engaged in cross-border securities transactions in the United States that it knew violated U.S. security laws and that UBS helped residents set-up dummy offshore companies to avoid tax obligations, the release states.

“At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes,” John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division, said in a statement.

Showdown
UBS is crying foul, claiming that the U.S. must respect long-standing Swiss financial privacy laws. The Swiss bank “intends to vigorously contest the enforcement of the summons in the civil proceeding,” according to a UBS press release.

The Swiss bank’s objections are “based upon U.S. law, the terms of UBS's Qualified Intermediary Agreement with the IRS, Swiss financial privacy and other laws, and the principles of international comity that require U.S. courts to take into account foreign laws,” according to UBS.

With a proposed $3.6 trillion budget, the U.S. can ill afford to let suspected tax evasion go unpunished. UBS is also unlikely to back down without a fight. According to Bloomberg’s Ann Woolner, the bank could face prosecution from the Swiss government for following the U.S. order. “If UBS complies, Switzerland can prosecute the bankers for violating Swiss law and lift UBS’s banking license,” according to Woolner.

Furthermore, if UBS were to release the thousands of U.S. customer names, it would “crumble public confidence in legendary Swiss bank secrecy, shrinking Switzerland’s international banking business, a linchpin in the economy,” Woolner wrote.
 

Lifson Interview

Fox News is set to interview former NYSSCPA president David Lifson about the U.S. crackdown on offshore tax shelters Monday. Check this blog post for details Monday morning.