Deadline Arrives for Voluntary Disclosure of Offshore Tax Evasion

The deadline is at hand for tax evaders to voluntarily tell the Internal Revenue Service about assets hidden in offshore banks and to get lesser penalties in return.

The most recent incarnation of the IRS' voluntary disclosure program, with its new uniform penalty structure, emerged last March following investigations into whether UBS AG, Switzerland's leading bank, aided and abetted tax evasion.

The IRS has had a voluntary disclosure policy for several years but centralized the program in the wake of the UBS investigation to make it easier for tax delinquents to report overseas assets in exchange for a break on penalties.

"My goal has always been clear - to get those taxpayers hiding assets offshore back into the system," IRS Commissioner Doug Shulman said in a March 26 statement. "People who come in voluntarily will get a fair settlement."

That settlement includes payment of back taxes and a 20 percent penalty on the highest amount in the foreign account over a six-year period, he added.

"We draw a clear line between those individual taxpayers with offshore accounts who voluntarily come forward to get right with the government and those who continue to fail to meet their tax obligations," he said.

Delinquent taxpayers who miss the Oct. 15 deadline face substantially higher penalties, including a sanction of 50 percent of the total overseas account balance, fraud penalties of 75 percent of the unpaid tax and possible criminal prosecution, according to an IRS statement.

The revamped voluntary disclosure program began following several investigations into UBS last year.

In 2008 UBS employee Bradley Birkenfeld and another European banker were charged in a Florida federal court with helping a California real estate developer evade federal taxes on $200 million. United States v. Birkenfeld et al., No. 08-60099, indictment unsealed (S.D. Fla. May 13, 2008).

Birkenfeld was sentenced in the U.S. District Court for the Southern District of Florida to 40 months in prison after pleading guilty to tax evasion conspiracy. He is a U.S. citizen who lived in Switzerland, according to federal prosecutors.

The other defendant, Lichtenstein banker Mario Staggl, is a fugitive.

Staggl is the second European banker to flee U.S. authorities. Raoul Weil, who headed UBS' wealth management business, fled shortly after the federal court in Miami indicted him on tax evasion conspiracy charges. United States v. Weil, No. 08-60322, indictment unsealed (S.D. Fla. Nov. 12, 2008).

UBS itself entered into a deferred prosecution agreement with federal prosecutors in February, agreeing to pay $780 million to avoid facing trial on conspiracy charges related to U.S. tax evaders. United States v. UBS AG, No. 09-60033, deferred prosecution agreement filed (S.D. Fla. Feb. 18, 2009).

The investigation continued, and the IRS issued a John Doe summons June 30 against UBS, seeking the names of American UBS account holders. A consequent deal struck between the U.S. and Swiss governments, finalized Aug. 19, requires UBS to "initiate procedures which could result in the turning over of information on thousands of accounts to the IRS," the U.S. Department of Justice said in a statement.

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