by Brian Mahany
With the ink barely dry on Swiss private bank Wegelin’s guilty plea to criminal tax charges, a U.S. District Court judge today approved a summons for customer records from UBS. The IRS wants the records to identify Americans and other U.S. taxpayers with unreported foreign accounts.
Although owning or controlling a Swiss bank account is totally legal, foreign accounts must be reported yearly to the IRS on a Report of Foreign Bank and Financial Accounts (FBAR). Failure to file an FBAR can be a felony and also lead to huge civil penalties.
Prosecutors say that Wegelin maintained a correspondent account at UBS. That account was used to help Americans clear money transfers to and from Switzerland. Wegelin had no branches in the United States and so relied on a correspondent relationship with UBS. Other Swiss banks apparently did the same.
A John Doe summons is used when the IRS does not know the name of specific taxpayers who may be violating the law. Unlike a normal subpoena which seeks records on specified individuals, the IRS relies on the John Doe process where it believes there are violations but does not know the names of the people breaking the law. Unlike normal information requests, John Doe summonses must be approved by a federal judge.
U.S. District Judge William Pauley III of Manhattan approved the IRS request and authorized the Service to seek records as far back as 2003 from UBS. These are records of transactions Wegelin and other banks made on behalf of U.S. taxpayers. In a formal press release, U.S. Attorney Preet Bahara said the John Doe summons was, “the latest step in our efforts to identify and prosecute U.S. taxpayers who think they can evade their legal responsibility to pay taxes by secreting their money away in anonymous offshore accounts at Wegelin and other banks.”
What does this mean for Americans with unreported Swiss accounts? The answer depends on whether those accounts were somehow tied to UBS Bank. Chances are that if your Swiss bank had a branch within the United States, the did not need require the services of a correspondent bank such as UBS. If your Swiss account is maintained at a U.S. branch of a Swiss bank, there also probably isn’t any reporting problems.
The IRS and Justice Department show no signs of backing down in their search for unreported Swiss and foreign accounts. If you have failed to file FBARs, the chances of getting caught have never been higher. Currently the IRS has several amnesty and opt out plans for taxpayers who wish to avoid criminal prosecution and draconian civil penalties. Consult with a tax advisor well versed in foreign reporting requirements before taking action but don’t delay. (The IRS operates on a “first contact” policy meaning if the IRS gets your name pursuant to John Doe summons, you automatically become ineligible for the offshore voluntary disclosure amnesty program.)
The tax lawyers at Mahany & Ertl have helped many taxpayers with unreported foreign accounts and other offshore reporting problems. From unfiled FBARs to foreign real estate transaction reporting, we can help. Most services can be handled for a reasonable flat fee.
For more information, contact attorney Bethany Kroes at bckroes@mahanyertl.com or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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