IRS Withdraws “John Doe” Summons Against UBS

Nov 30, 2010   
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On November 16, 2010, the Internal Revenue Service (“IRS”) and the government of Switzerland announced that the IRS has withdrawn its legal proceedings against Swiss bank UBS stemming from the banks role in assisting its U.S. clients to shield income from the IRS. Had the summons been fully enforced, it could have led to the revocation of UBSs operating license in the United States.

As we previously reported, the IRS originally filed its “John Doe” Summons, a summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified, against UBS in 2008. In 2008, the IRS increased its efforts in pursuing U.S. taxpayers who had avoided federal taxes by holding money in undeclared offshore accounts. An undeclared account is an account for which the IRS does not have a W-9 form from the account holder. At that time of the filing of the Summons, the IRS sought details from UBS on 52,000 undeclared accounts, held by U.S. taxpayers at UBS in Switzerland at any time between 2002 and 2007.

During its investigation, the IRS accused UBS of having helped thousands of Americans avoid paying taxes in the U.S. by setting up off shore accounts. The IRS further alleged that UBS helped American taxpayers hide approximately $20 billion. In February of 2009, UBS admitted wrongdoing and paid fines and penalties totaling $780 million. Additionally, in August of 2009, the U.S. and Switzerland entered into an agreement whereby UBS would provide account holder information for 4,450 accounts in exchange for the IRS withdrawing the Summons.

According to the terms of the August 2009 agreement, the Swiss Federal Tax Administration was required to review the 4,450 targeted accounts to see if they satisfied the requirements for disclosure. In order to satisfy the requirements for disclosure, the UBS clients suspected in engaging in tax fraud must have been either U.S. domiciled clients of UBS who directly held or beneficially owned undisclosed accounts in excess of 1 million Swiss Francs at any point between 2001 and 2008, or any U.S. person, regardless of domicile, who beneficially owned offshore company accounts established or maintained between 2001 and 2008. Of the 4,450 accounts reviewed approximately 4,000 met the criteria for disclosure. The complete US-Swiss Agreement can be read here.

While the IRS has withdrawn its Summons against UBS it has also announced that it will continue its efforts at focusing on foreign banks around the world that harbor and aid tax evaders. A full copy of the IRS press release can be read here.

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