Americans in Switzerland are rushing to disclose their holdings to US tax authorities after the Swiss government agreed to hand over details on 4,450 UBS AG accounts to the Internal Revenue Service.
“A lot of people were sitting on the fence, and those names were the catalyst for them to move forward,” said Matthew Ledvina, an international tax lawyer in Zurich. “I’ve received a lot more calls since the settlement.”
Americans with undeclared assets overseas have until September 23 to disclose those holdings to the IRS or face possible criminal prosecution that could result in as much as 10 years in prison and $500,000 in penalties. Swiss bank secrecy protection was weakened this week when the government agreed to give the details of some UBS accounts to the IRS.
The US and Switzerland agreed not to release the criteria for disclosing account details for 90 days to “ensure that the IRS voluntary disclosure program runs smoothly,” the Swiss government said in an August 19 statement.
“We’re getting three, four or five new inquiries a day from people looking to find more about the voluntary disclosure program,” said Darlene Hart, founder of US Tax and Financial Service Ltd in Zurich. “This is being spurred by the UBS settlement.”
The IRS is getting more than 500 new people to enter its voluntary disclosure program every week, whereas before the UBS case, it was about 400 a year, Hart said. IRS Commissioner Douglas Shulman declined to comment on the number of people who had made disclosures.
‘Noose Is tightening’
Under the disclosure program, taxpayers must pay any tax owed, plus interest and a 20 per cent penalty on the highest balance during the preceding six years.
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The US sued UBS on February 19, a day after the bank agreed to provide the names of 250 account holders and pay $780 million to avoid prosecution for helping wealthy Americans evade taxes. Since then, there has been a big increase in the number of US citizens looking to do voluntary disclosure, said Stephanie Jarrett, a partner at Baker & McKenzie in Geneva.
“A lot of people knew the change was coming, but they thought they had a few more years,” she said. “The noose is tightening faster than they ever imagined.” People who have accounts with layers of companies and trusts are more likely to face criminal prosecution if they make a voluntary disclosure, Jarrett said.
‘Major gamble’
Switzerland agreed to turn over account details related to “tax fraud and the like,” according to the text of the UBS settlement. UBS will give account information to a government task force, which will decide what it can relay to the IRS without violating Swiss law. The entire process is expected to take about a year.
Milan Patel, a former IRS litigator who is now a tax lawyer at Withers LLP in Geneva, said he has had several meetings with and calls from new clients since the UBS settlement. “The UBS settlement puts immense pressure on someone to go through the IRS voluntary disclosure program,” Patel said. “Anyone who doesn’t do it is taking a major gamble that their name will not be disclosed to the IRS.”