A Tax Evasion Chapter Ends As IRS Gets Tough

After the deal almost fell apart, the Swiss parliament and Swiss bank UBS agree to provide data to the IRS, finally collapsing the world’s most famous tax shelter.

With an historic deal on the brink of collapse, the Swiss parliament has approved the release of banking data to the Internal Revenue Service.

The deal, brokered in the wake of a Department of Justice investigation of Swiss banking giant UBS, pierces the Swiss banking veil and destroys a tax shelter so famous it has become a common pop-culture reference.

Now, UBS is in position to release the details of 4,450 offshore account holders suspected of evading U.S. income taxes.

For UBS, the decision to release the data came with significant arm-twisting from the U.S. government. In February 2009, UBS agreed to pay the U.S. government $780 million in order to put an end to criminal charges alleging the bank helped U.S. clients evade taxes.

For U.S. taxpayers engaged in tax evasion, the agreement with UBS and the Swiss government should come as startling news.

What was once considered an impenetrable veil — a tax shelter so strong it had survived two World Wars and an international banking crisis — is no more.

The IRS will soon obtain data and information on U.S. taxpayers who have evaded taxes for years, even decades. So if you have delinquent tax returns, this concerns you.

While it’s true that Swiss banks tended to be the tax shelter of choice for the wealthiest of U.S. taxpayers, the UBS deal is just as important to those evading taxes through other means.

In short, the U.S. government’s success in piercing the Swiss banking veil should prove finally that no tax shelter is safe.

Indeed, previous actions from the IRS support that conclusion.

Before the Swiss agreement, the U.S. government brokered a deal with the major credit card companies to provide information on clients who were linking their credit cards to offshore bank accounts, primarily in the Caribbean. At the time, a common tax-avoidance scheme was to funnel money into a Caribbean account, then use it to pay credit card bills full of purchases made in the United States.

The tax evaders who employed this scheme either came forward during the amnesty period or were prosecuted, just as the UBS account holders likely will be.

With a record deficit and a slow economic recovery, the federal government has made tax collection and enforcement a top priority. This year, the U.S. Congress approved a record $5.5 billion enforcement budget for the IRS.

That means the IRS will have even more agents this year to audit taxpayers and investigate tax cheats — part of a three-year trend of putting more revenue officers on the streets.

So let’s summarize:

The IRS stopped the use of credit cards linked to offshore accounts.

The U.S. Department of Justice pierced the Swiss banking veil.

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Tags: delinquent taxes, failing to file federal tax return, irs problems, tax cheats, tax evasion, tax relief, unfiled tax returns

This entry was posted on Tuesday, July 13th, 2010 at 9:45 pm and is filed under IRS Times and Inquirer, IRS help, Tax news and tips, Unfiled Returns - Delinquent Tax Returns, tax help. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.