United States and Swiss Confederation Come to Agreement on UBS AG Case

On August 19, 2009, the United States and Swiss governments signed an agreement to settle the UBS John Doe summons enforcement case. Before such agreement, the IRS had acted on the suspicion that some individuals used their offshore UBS accounts in order to evade tax payments. What was once a dispute between UBS and the United States Justice Department turned into a confrontation between the governments of both countries.

Eventually, the Swiss Confederation agreed to supply the IRS with 4,450 accounts holders (with a potential for more given the appropriate circumstances) under the information-sharing article in Switzerland-U.S. income tax treaty, an outcome that pleased both sides. Upon the signature of the agreement, the United States Justice Department withdrew its summons enforcement action against UBS. The agreement would also give UBS account holders an option to voluntarily disclose their account information in order to avoid further consequence if they believe that they may have committed any type of tax evasion. It is believed that instead of paying a penalty of nearly 50% of their highest account balance, those who voluntarily disclose information will be subjected to a 5-20% penalty.

IRS Commissioner Douglas Shulman expressed his satisfaction over the verdict, especially due to the voluntary disclosure incentive within the agreement. According to members of Congress and many tax professionals, the case should set a precedent towards greater compliance with the IRS as well as put an end to some egregious bank-secrecy abuses. The Swiss government also benefited from the agreement because it managed to maintain some modicum of bank secrecy by retaining the right to review accounts internally before sending information to U.S. authorities. 

See David D. Stewart: "Swiss Agree to Expedite Processing of 4,450 UBS Accounts Under Treaty Request," 1 2009 TNT 159-1, August 19, 2009

See Barry B. Shott and Guillaume Scheurer: "Agreement Between The United States of America and The Swiss Confederation," US-Swiss Government Agreement, August 19, 2009

See IRS-UBS: "Settlement Agreement," US-UBS Agreement, August 19, 2009

See Lynnley Browning: "Names Deal Cracks Swiss Bank Secrecy," New York Times, August 19, 2009

See Carrick Mollenkamp, Laura Saunders, and Evan Perez: "UBS to Give 4,450 Names to U.S.," The Wall Street Journal, August 20, 2009

See David. D Hilzenrath: "For Americans Who Blew Whistle, Only Reward May Be a Jail Sentence," The Washington Post, August 20, 2009. 

See TaxProf Blog: "UBS Agrees to Release 4,450 Names to IRS in Tax Evasion Case," August 19, 2009.

Posted by Raj Chudgar, Associate Editor, Wealth Strategies Journal