Financial Regulatory Forum

U.S. tax evaders rush to beat amnesty deadline

By Reuters Staff
September 14, 2009

By Kim Dixon
WASHINGTON, Sept 14 (Reuters) – Rich Americans who have evaded taxes by hiding foreign holdings have about a week to turn themselves in to an Internal Revenue Service amnesty program or gamble they will not be caught.

U.S. citizens with undeclared assets in tax havens such as Switzerland face a Sept. 23 deadline to reveal their holdings, pay a fine and generally avoid criminal prosecution. When that amnesty program expires, any tax cheats found by the government could face criminal prosecution.

The IRS expects to find some tax evaders soon. UBS AG, the Swiss banking giant, agreed to hand over to the IRS the names of about 4,450 secret accounts as part of a court settlement reached last month.

“This is sort of their last, best chance if they are going to get off with lenient treatment,” said Evan Stewart, a regulatory lawyer at the firm Zuckerman Spaeder.

“If you’re sitting there and you’ve sheltered $50 million from the U.S. government, are you willing to gamble with the (list of) 4,500 (names) and live in terror for a year?” Stewart said.

The IRS said that, in one week of July, about 400 individuals turned themselves in under the amnesty program. That was four times higher than the number of tax evaders who stepped forward in all of 2008, according to the agency.

The IRS declined to provide any other figures about
participation in its amnesty program.

IRS Commissioner Doug Shulman warned investors with
money or securities in overseas accounts to step forward before the deadline.

“Once the Swiss government turns over names, all bets are off,” he said when announcing the UBS deal.

It appears to be working.

“They are all terrified,” said Ken Rubinstein, who handles such cases in New York.

Under the UBS settlement, the bank agreed to first hand over the names of 500 clients within about two months to Swiss authorities, who will review them before sending the list to U.S. officials. The remaining names will be submitted in a similar process by about May of next year.

At the same time, IRS officials have said other foreign banks are being queried for possibly helping the wealthy evade taxes, although they have declined to be specific.

Lawyers say their clients include UBS holders, but also those with funds at HSBC Holdings PLC, Credit Suisse Group AG and in other offshore locations such as the Cayman Islands.

By coming forward voluntarily, individuals significantly minimize penalties.

“You can end owing more than is in the account when you add up all the liabilities,” said an IRS official, who was not authorized to named.

A taxpayer with about $1 million in an offshore account for six years would pay about $386,000 under the amnesty program, compared with $2.3 million under the normal regime, according to an IRS example.

THREE-DAY TURNAROUND

The approaching deadline has created a boon for tax lawyers.

“We and pretty much every other practitioner I know are being swamped with calls from clients who have waited until the 11th hour,” said Scott Michel, a lawyer who is handling about 250 amnesty cases at Caplin & Drysdale.

Michel, whose clients have accounts valued between $1 million and $10 million, but with some reaching above $100 million, said they range from sympathetic Holocaust survivors to more typical tax dodgers.

“There are some people who were just cheating on their taxes; there is no doubt about it,” Michel said.

The IRS began the program in March, part of an agency-wide focus on catching tax dodgers, to help make a dent in the $345 billion tax gap — the amount the agency estimates goes uncollected each year.

Steven Mopsick, who worked for the IRS for 30 years, said he is getting a three-day turnaround when he submits information to the IRS for the amnesty program.

After checks on a client’s passport or Social Security number to ensure there are no ongoing IRS probes, and a signature confirming that no income has come from illegal sources, the IRS grants a conditional approval before even looking at the tax forms.

The agency “is interested in getting these things approved,” said Mopsick, who is handling about 30 clients with accounts valued between $1 million and $2 million. “The acceptance letter says you have been conditionally approved for the program; sit tight and an agent will contact you,” he said.

Several lawyers involved in the program say many of their clients are immigrants who have inherited the funds.

“The one thing that I’m noticing with some degree of surprise is how ordinary the clients are,” Rubinstein said. “The vast majority of our clients are ordinary. We haven’t seen many billionaires.”

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