Deadline for UBS Seen Marking Changed Disclosure Landscape
By Alison Bennett
Publication Date: 08/24/2010
The Aug. 24 deadline for Swiss banking giant UBS to turn over 4,450 names of U.S. clients with undisclosed assets—after a year marked by legal battles to protect the information—is a mile marker in a changed landscape of disclosure and transparency, practitioners told BNA in interviews.
The UBS investigation is part of a concerted crackdown by the United States and other governments that has led to a profound alteration in the ability of taxpayers to hide assets overseas, they told BNA. Information continues to pour in from a special Internal Revenue Service program to disclose those assets in 2009, and taxpayers continue to seek acceptance into a preexisting voluntary disclosure program that still is available to those who want to come into compliance, practitioners said.
Although they said IRS generally is doing a good job of processing a flood of cases, some interviewed by BNA said issues remain with the length of processing time, the level of scrutiny, and the question of which cases are selected for more audits.
‘Dominoes Are Falling the Government's Way'
In the broader picture of disclosure, “The dominoes are falling the government's way,” Mark Matthews, a former IRS chief of criminal investigations now with Morgan, Lewis & Bockius LLP, Washington, D.C., said in an Aug. 19 interview. “A short time ago, I would have expected it would have been a 30- to 40-year battle to see some of the enforcement actions we are seeing, especially those from foreign governments,” Matthews said.
Tax attorneys said in interviews that the era when taxpayers could conceal assets in foreign institutions is ending.
Bryan Skarlatos, Kostelanetz & Fink LLP, New York, said Aug. 23 that the UBS case “has huge significance. It's not only the first chink in the armor of the wall of Swiss bank secrecy, but it's also the beginning of the end for Swiss bank secrecy.” With other banks now in IRS's sights and assistance from other governments, he said, “It's the end of bank secrecy as we know it.”
Days of Bank Secrecy Seen Numbered
Jim Mastracchio, Caplin & Drysdale Charted, Washington, D.C., said he too believes that, “The days of bank secrecy are over. The IRS and the U.S. government continue to focus on other financial institutions. I don't think we're going to see an end to this any time soon.”
The Aug. 24 deadline is a condition of the original agreement between the United States, UBS and the Swiss government in August 2009 that called for release of the names of 4,450 U.S. investors with accounts in UBS in August 2010.
The agreement came in two interrelated parts. One broadly involved an accord with UBS in which U.S. taxing authorities agreed to stop enforcing a hotly contested John Doe summons in United States v. UBS AG in return for access to information on UBS account holders. The second was a new treaty mechanism between the United States and Switzerland to facilitate release of the names.
The accord was reached just four weeks before the scheduled end of a special voluntary program for individuals to disclose U.S. assets in foreign accounts, which began in March 2009 and was set to end Sept. 23, 2009. IRS then extended the program, which offered a concrete penalty structure and the chance to avoid criminal prosecution, through Oct. 15, 2009.
Thousands of Disclosures
Although Commissioner of Internal Revenue Douglas Shulman originally estimated the program would reap about 7,500 disclosures, nearly 15,000 people came in by that Oct. 15 deadline.
As the government looks through the names it receives through the UBS agreement, practitioners said they believe IRS will look first at whether or not those taxpayers already have come forward.
“I suspect that the government is cataloguing all the data coming in with a first goal of determining which accounts have not been previously disclosed, likely focusing on the accounts with the largest balances first,” Morgan's Matthews said. “I suspect there will be a few very large accounts in that group.”
Mastracchio also said he expects there would be “two buckets” for the disclosure—taxpayers who already have entered into disclosure agreements and those who have not. The first category of taxpayers are being treated as a civil matter, while with regard to the second, “I think they can be subject to a civil exam at a minimum, and there could be a criminal investigation,” he told BNA.
Broader Transparency Picture
Skarlatos said, “I think it's become very delicate for people with UBS accounts. There is a need to come forward as soon as possible. There is real pressure for those people to get whatever leniency they can get.”
The UBS case is one element of a broader disclosure picture as IRS tries to process cases for thousands of taxpayers who came in under the special settlement program and those who still are coming in, practitioners said.
They emphasized in interviews that the voluntary disclosure program, as it existed before the 2010 settlement initiative, remains in place, and said taxpayers continue to apply for that program in significant numbers.
“I think some good news is that if you take a look at some of the disclosures that have been made to date, many, many more taxpayers now know what a voluntary disclosure is and are able to come forward and work with the IRS proactively to fix issues,” Josh Ungerman, Meadows, Collier, Reed, Cousins, Crouch & Ungerman LLP, Dallas, told BNA Aug. 23.
Certainty on Penalties Seen Needed
Ungerman said with regard to taxpayers who came in under the special settlement program in 2009, “I think the IRS is doing a very good job of processing those cases.” For those taxpayers who came in after that program ended Oct. 15, “I don't think it's taking too long,” he said. “I think people are happy they have been accepted.”
Several of the practitioners interviewed said they hoped IRS would consider offering certainty with regard to penalties for disclosures made after the end of the special program.
Mastracchio noted that IRS now can assert regular penalties in these cases instead of the 20 percent structure offered in 2009, and taxpayers can expect to see a variety of penalties being applied. At the same time, he said, “It's still good to come in to avoid the risk of criminal exposure.”
Matthews said, “Many private practitioners have expressed the hope that the IRS will provide for some flexibility in the penalty structure both with cases already disclosed and those post-Oct. 15 cases where there is no stated penalty. A presumptive penalty range with some consideration of those few cases with special circumstances would bring in more taxpayers.”
The complete text of this article can be found in the BNA Daily Tax Report, August 24, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2010, The Bureau of National Affairs, Inc.
