Over the last few years the IRS’s Office of Professional Responsibility (“OPR” or “the Office”) has lived up to its promise of investigating tax practitioners that have been allegedly engaged in questionable conduct related to their advising clients on tax advantaged transactions and preparing tax opinions.  

Swiss banking giant UBS AG (UBS) is facing ongoing pressure on all fronts—from the Department of Justice (DOJ), the Internal Revenue Service (IRS), U.S. Congress, and the international community—to disclose the names of offshore accountholders who use UBS accounts to avoid their taxes.  Federal authorities suspect that approximately 19,000 U.S. taxpayers have used 52,000 UBS accounts to hide $18 billion in assets—or $300 million in tax liabilities.  U.S. UBS accountholders who failed to disclose their offshore accounts to the IRS potentially face major repercussions and should carefully evaluate recent developments. 

On April 16, 2009, a federal judge in Denver granted a Justice Department request to serve a “John Doe” summons on payment processor First Data Corporation (“First Data”).  The “John Doe” summons seeks the names of all First Data clients that allegedly used First Data to transfer the proceeds of credit and debit card transactions to offshore accounts since 2002.  

On March 26, 2009 the IRS provided guidance to its field agents on how to deal with U.S. taxpayers who own interests in foreign (offshore) financial accounts that they have previously not disclosed to the IRS.  Failure to disclose such accounts to the IRS is punishable by a heavy fine and, in some cases; criminal charges may be brought against the taxpayer.  However, IRS Commissioner Douglas Schulman announced if these taxpayers come forward and divulge all of the information regarding their offshore accounts they can expect significant penalty relief. The penalty relief portion of the voluntary disclosure program will only be available to taxpayers who come forward within the next six months, or by September 26, 2009.

Last week, Swiss banking giant UBS AG (UBS) reported that it will close all secret offshore accounts held by U.S. accountholders amid growing pressure from U.S. tax authorities investigating potential tax avoidance by U.S. taxpayers.  The move aids federal authorities in investigating accountholders for filing false tax returns, willful failure to disclose accounts, tax evasion and tax fraud by exposing evidence of the undisclosed accounts.  As discussed earlier this month in the Williams Mullen Tax Law Team Alert, U.S. Government Targets UBS Offshore Account Holders, federal authorities estimate that 19,000 U.S.-held UBS accounts have been used to hide $18 billion in assets - or $300 million in tax liabilities - each year.