Recently we received a telephone call from a person who had a family member holding an unreported UBS account in Belgium. Should her family member be worried, she asked? Yes!
UBS was the first of many offshore banks to be targeted by the IRS. In June of 2008, U.S. Justice Department officials began a criminal investigation of the Swiss banking giant. That investigation was prompted by a whistleblower, Brad Birkenfeld, who claimed that UBS was helping Americans hide money and avoid taxes.
Later that year, a federal grand jury indicted Raoul Weil, a member of UBS’ executive committee and head of its Global Wealth Management division. The government would subsequently enter into a deferred prosecution agreement with the bank itself and collect a record $780 million fine. The government also demanded the names of the estimated 52,000 Americans with offshore UBS accounts.
Unreported UBS Accounts Not Limited to Swiss Based Accounts
Mainstream media talks about unreported UBS accounts in Switzerland but UBS has offices in 50 countries. While folks doing business with UBS branches in the United States need not worry about reporting those accounts, those doing business with UBS in any of the 49 other countries should be very worried.
Federal law requires U.S. taxpayers holding or controlling more than $10,000 in foreign financial assets to report those assets on a Report of Foreign Bank and Financial Accounts – FBAR for short. Willful failure to file an FBAR is a felony and also carries huge civil penalties. The risks of criminal prosecution are low for most people but the chances of getting caught and being required to pay enormous civil penalties are quite high. The risks for those with unreported UBS accounts are even greater.
What are the penalties? The civil penalty for willful failure to file an FBAR and having an unreported UBS account is up to the greater of $100,000 or 50% of the highest account balance per year, per account. Typically, the IRS only assesses those penalties on one year but we have reported cases where the IRS has assessed civil penalties greater than the account balance!
Most of the UBS criminal prosecutions to date have involved Americans with unreported UBS accounts in Switzerland. Earlier this summer, however, the IRS prosecuted an Illinois businessman with an account set up through UBS Jersey, in the Channel Islands.
The Bailiwick of Jersey is a small nation with a population far less than most American cities (97,000). Although tiny in size and population, it is an important European financial center and location of several UBS offices. Peter Troost, the owner of a grave marker business in Skokie, Illinois, decided it was the ideal “off the map” location to open a foreign bank account. He consulted with a UBS representative and opened an account there. Unfortunately, Troost did not report his account and did not file FBARs. This summer he was sentenced to a year in prison.
In addition to the prison term, Troost paid about $1 million in back taxes and $3.75 million in penalties.
Prosecutors argued that “Troost did not evade his taxes out of financial need or desperation. He operated a profitable and successful business; he had more than enough money to pay his taxes. He made a deliberate, conscious decision not to do so.”
Chicago’s U.S. Attorney says that Troost’s prosecution directly stems from information turned over to the IRS as part of the 2008 – 2009 criminal investigation of UBS.
The IRS operates on a system of voluntary compliance. Generally, people who come into compliance before they are contacted by the IRS can avoid criminal prosecution. Taxpayers with unreported offshore accounts who come into compliance before their names are turned over to the IRS by foreign banks can also take advantage of IRS amnesty programs including the Offshore Voluntary Disclosure Program (OVDP).
Seeking Offshore Account Whistleblowers
As noted above, the IRS operates on a system of voluntary compliance. Auditors can’t examine every tax return filed. And when it comes to offshore accounts, it is even harder for the IRS to find out about those accounts.
Since this post was written in 2013, The IRS and Department of Justice have become quite adept at ferreting out unreported offshore accounts.
And the frequent criminal prosecutions means there is a huge incentive for those accused of having or promoting unreported overseas accounts to cooperate with authorities in the hopes of getting a lenient sentence.
Probably the biggest boost, however, to the IRS’ search for offshore tax evaders comes from whistleblowers. Under the IRS Whistleblower Program, whistleblowers can receive up to 30% of what is collected from taxpayers who fail to report or pay their taxes properly.
If you have information about an offshore bank, accounting firm or consultant that helps Americans hide their assets from Uncle Sam, your information could be worth millions.
To learn more, visit our offshore tax fraud whistleblower information page. You can also contact us online, by email or by phone at 202-800-9791. Our team of IRS whistleblower lawyers has helped people across the United States collect over $100 million in awards.