The Internal Revenue Service has dropped its legal action against Swiss bank UBS AG after the Swiss government handed over the names of 4,000 U.S. taxpayers who had undisclosed accounts at the bank.
An agreement reached by the United States and Switzerland in August 2009 to reveal the names could not be implemented at the time because it was challenged in the Swiss courts.
Under foreign bank account reporting (FBAR) rules, UBS account holders who did not report their accounts could pay sizeable interest and penalties on back taxes.
“These UBS treaty request account holders face a full-blown audit, and potentially more depending on the circumstances, unless they came in through the voluntary disclosure program first,” IRS Commissioner Douglas Shulman said in a statement.
The IRS said in its statement that the agency eventually will receive information on a total of 7,500 UBS AG accounts. The additional 3,500 include voluntary disclosures and some account holders who still have appeals before the Swiss Federal Administrative Court.
UBS had been the target of the U.S. Justice Department since whistleblower Bradley Birkenfeld voluntarily approached U.S. authorities in May 2007, offering details on illegal tax shelters run by UBS where he had worked since 2001.
In 2008, based on Birkenfeld’s testimony, UBS signed a deferred prosecution agreement with the Justice Department, agreed to pay a fine of $780 million dollars, and handed over the names of 265 American clients. The IRS then sought the names of thousands of additional account holders from UBS through the Justice Department action it has now abandoned.
In his statement, Shulman also wanted to emphasize the success of a 2009 voluntary disclosure and amnesty program that brought in 15,000 account holders in UBS and other Swiss banks, including Credit Suisse and HSBC. After the program ended, 3,000 more taxpayers with Swiss bank accounts came forward.
Shulman made clear that the end of legal action against UBS does not mean the end of IRS’s scrutiny of offshore banks accounts and tax shelters, and those who promote them. Data obtained from the 4,000 accounts and the 15,000 accounts that came in during the voluntary disclosure period will continue to be helpful in “supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisors, and promoters from around the world,” he said.
The IRS has reorganized the large corporate division, which is now called the Large Business and International Division, to “further emphasize and specialize their international and offshore banking efforts."