UBS and US deal

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UBS has issued a press release on its deal with the US saying that the:

‚Ä¢  Agreement does not call for any payment
‚Ä¢  Parties will promptly file a stipulation with the court dismissing the enforcement action relating to the John Doe summons
‚Ä¢  IRS will submit request for administrative assistance pursuant to the existing US-Switzerland Double Taxation Treaty
‚Ä¢  US and Swiss governments expect that approximately 4,450 accounts will be provided to the Swiss Federal Tax Administration in response to this treaty request
‚Ä¢  UBS will send notices to affected US persons encouraging them to participate in the IRS's voluntary disclosure practice
‚Ä¢  Agreement also resolves all issues relating to the alleged breaches by UBS of the Qualified Intermediary Agreement

The Department of Justice has said:

The Justice Department and the Internal Revenue Service (IRS) today announced that the agreement with the Swiss government has been finalized.  As a result of the agreement, the United States will receive substantially all of the accounts of interest when it initiated the John Doe summons against UBS on June 30, 2008.

Under the agreement, the IRS will submit a treaty request to the Swiss government describing the specific accounts for which it is requesting information.  The Swiss government will then direct UBS to initiate procedures to turn over information on thousands of accounts to the IRS.  The IRS will receive information on accounts of various amounts and types, including bank-only accounts, custody accounts in which securities or other investment assets were held and offshore company nominee accounts through which an individual indirectly held beneficial ownership in the accounts.

Also, the agreement retains the U.S. Government’s right, if the results are significantly lower than expected and other measures fail, to seek appropriate judicial remedies, including resuming actions to enforce the John Doe summons.

The agreement involves a number of simultaneous legal actions:

  • The judicial enforcement of the John Doe summons will be dismissed.  While this enforcement motion will be withdrawn, the underlying John Doe summons remains in effect.
  • Upon receiving the treaty request, the Swiss government will direct UBS to notify account holders that their information is included in the IRS treaty request.  It is expected that these notices will be sent on a rolling basis with some being sent over the coming weeks and others over the coming months. Receipt of this notice will not by itself preclude the account holder from coming into the IRS under the Voluntary Disclosure Program, which is due to end on Sept. 23, 2009.

In addition, the Swiss Government has agreed to review and process additional requests for information from other banks regarding their account holders to the extent that such a request is based on a pattern of facts and circumstances equivalent to those of the UBS case.

Information provided to the IRS through this process will be thoroughly examined for all potential civil and criminal tax violations.  The IRS will assess any additional tax, interest and a number of applicable penalties.  This includes the penalty for the wilful failure to file a Report of Foreign Bank and Financial Accounts (FBAR). This penalty can be up to 50 percent of the value of the account for each year an FBAR was not filed. Under the Voluntary Disclosure Program, the account holders must pay 20% of the amount of tax that was underpaid for the past six years and 20% of the highest value of the account over the past six years, in addition to all their unpaid taxes and interest due on those taxes.

The IRS will also recommend criminal prosecution in those cases where the facts warrant such an action.  To date, the Justice Department and the IRS have successfully prosecuted four U.S. customers of UBS whose information was provided to the IRS by the Swiss bank as part of the Deferred Prosecution Agreement.

Individuals whose information is obtained by the IRS through this process will, by longstanding policy, not be eligible for the voluntary disclosure program.

The UBS statement makes it sound as if the matter has been amicably resolved.

The DoJ has mentioned the fine print which includes some comforting detail, including the right to resume and an extension to other banks.

According to the BBC the 4,450 accounts included assets of at least $18 billion, although it’s not clear if that sum is all there now. I would expect a significant part of that sum to end up in the hands of the IRS.

More than that, I’d expect many more than that number will actually come forward, and not just UBS customers either. As the IRS are clearly evidencing, their confidence is high, their willingness to proceed as high and it would take a fool to ignore that.

Mind you, you had to be pretty foolish to use these arrangements in the first place. But at least the odds have changed now.