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Why Tax Evasion is a Bad Idea: UBS and Wegelin Bank

Why Tax Evasion is a Bad Idea: UBS and Wegelin Bank

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Published by Gary S. Wolfe
In America, a country that fought a revolution
over taxes, tax evasion is a bad idea. U.S.
taxpayers with undisclosed offshore accounts with unreported income face “double jeopardy”: civil tax fraud (with no statute of limitations) and criminal tax evasion (with a six-year statutes of limitation).
In America, a country that fought a revolution
over taxes, tax evasion is a bad idea. U.S.
taxpayers with undisclosed offshore accounts with unreported income face “double jeopardy”: civil tax fraud (with no statute of limitations) and criminal tax evasion (with a six-year statutes of limitation).

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Categories:Business/Law
Published by: Gary S. Wolfe on May 09, 2013
Copyright:Attribution Non-commercial

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10/11/2013

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The Practical Tax Lawyer | 39
Gary S. Wolfe
In America, a country that ought a revolu-tion over taxes, tax evasion is a bad idea. U.S.taxpayers with undisclosed oshore accountswith unreported income ace “double jeopar-dy”: civil tax raud (with no statute o limita-tions) and criminal tax evasion (with a six-yearstatutes o limitation). Severe fnancial penal-ties and jail sentences await those U.S. taxpay-ers who get caught “cheating on their taxes.
Tax evasion
has never been a good idea. In this ar-ticle, I’ll discuss the Wegelin and UBS Bank cases to makethat point.
THe UBs Case
• UBS, Switzerland’s largest bank, be
-
came “the rst crack in the Swiss Banking System” when,on February 18, 2009, they entered into a deferred pros
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ecution agreement with the U.S. Department of Justice(“DOJ”). Under the agreement, UBS agreed to pay a$780 million ne and turn over the names and accountinformation of 285 U.S. account holders who were notreporting their foreign nancial accounts, the assets heldin these accounts, nor the income from the assets held inthese accounts. On February 19, 2009, the DOJ led acivil suit seeking to force UBS disclosure of up 52,000 ac
-
counts held by U.S. taxpayers. On August 19, 2009, UBS
Gary S. Wolfe
has been in private practice in Beverly Hills,Century City, and Los Angeles since 1982. He isan international tax lawyer representing clientsor IRS audits, international tax planning, andasset protection. Previously, Gary was the man-aging partner o a tax and business law frmwhich represented Fortune 500 companies(IBM, ITT) and fnancial institutions (SterlingBank, First Charter Bank.) Gary now providescase management or international litigation.Since 2004, Gary has been conducting privateseminars throughout Caliornia on internation-al tax and asset protection. He can be reachedat gsw@gswlaw.com and through his websitewww.GSWlaw.com.
Why Tax Evasion Is A Bad Idea:UBS and Wegelin Bank 
 
40 | The Practical Tax Lawyer Spring 2013
and the DOJ entered into a settlement agreement inwhich an additional 4,450 accounts of non-compli
-
ant U.S. taxpayers were disclosed. A parallel agree
-
ment was signed on August 19, 2009 between theU.S. and Swiss government, based on the existing U.S.-Switzerland Double Taxation Treaty, whichwas approved by the Swiss Parliament on June 17,2010. On October 22, 2010, the U.S. DOJ agreed
to dismiss its criminal prosecution against UBS be-
cause UBS complied with its obligations.In total, UBS paid $780 million in nes, andturned over 4,735 U.S. taxpayers, suspected of taxevasion to the U.S. government. These U.S. taxpay
-
ers with Swiss bank accounts at UBS who failed
to disclose the accounts, the account assets and the
income (from the account assets) violated multipleU.S. tax ling requirements as follows:Form 1040 Individual Tax Returns: Annual re
-
porting of world-wide income;Report of Foreign Bank and Financial Accounts,(“FBAR”) (Form TDF 90-22.1). Annual disclo
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sure of foreign bank and nancial accounts inwhich the U.S. taxpayer has a nancial interestin, or signatory authority over any nancial ac
-
counts in a foreign country, if the total valueof such accounts exceeds $10,000 at any timeduring the calendar year. Signature Author
-
ity is dened as the authority (either alone orin tandem with another individual) to controlthe disposition of assets, funds or money heldin a nancial institution account, by deliveryof written or oral instructions, directly to thenancial institution which holds the account.The U.S. taxpayer must le the FBAR, disclosethe foreign account on Form 1040/Schedule B(Part III: Foreign Accounts and Trusts) and re
-
port all income earned on the foreign accounton Form 1040;Form 8938: “Specied Foreign Financial Assets”to disclose foreign nancial assets in excess of $50,000 (Form 8938 is attached to Form 1040).The ling of Form 8938 (with Form 1040) doesnot relieve U.S. taxpayers of the requirement tole the FBAR (Form TDF 90-22.1) if the FBARling is otherwise due. For those U.S. taxpay
-
ers who established UBS accounts, with the as
-
sistance of tax advisors, under 18 U.S.C. 371,both the taxpayer and the tax advisors may beheld liable for conspiracy to defraud the U.S. A conspiracy to defraud the U.S. for taxes due isknown as a Klein Conspiracy. The U.S. govern
-
ment must prove that there was an agreementby 2 or more persons to impede the IRS, andeach participant knowingly, willfully and inten
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tionally participated in the conspiracy.A U.S. taxpayer’s failure to report their world
-
wide income, disclose foreign nancial accountsover $10,000, disclose foreign nancial assets over$50,000, which appears to be the case for the 4,735U.S. taxpayers with UBS accounts, subjects theseU.S. taxpayers to signicant civil and criminal pen
-alties as discussed herein.
Cl ad Crml Plt
U.S. taxpayers face civil and criminal tax penal
-
ties when they:Fail to report worldwide income on their tax re
-
turns (Form 1040);Fail to report foreign nancial accounts, inwhich they have a nancial interest or have sig 
-
natory authority, account value over $10,000(Form TDF 90-22.1); and/orFail to report foreign nancial assets, in whichthey have an ownership interest, assets over$50,000 (Form 8938).
 
U.S. Taxpayers include:U.S. citizens;
 
 Tax Evasion is a Bad Idea | 41
U.S. “Green Card” holders;U.S. resident aliens in the U.S. for 183 days inone year, or 122 days per year over 3 consecu
-
tive years.U.S. taxpayers must le annual U.S. income taxcompliance:Form 1040: report worldwide income;Form TDF 90-22.1 (FBAR) to report foreign
-
nancial accounts valued over $10,000;Form 8938 to report foreign nancial assetswith value over $50,000, in which they have anownership interest.U.S. taxpayer foreign assets must be reportedunder the FBAR ling and the FATCA ling forforeign assets over $50,000. These foreign assetsmust also be reported under Form 1040 Schedule
B.
Form 8938 (reporting specied foreign nancialassets) must be attached to tax return/Form 1040.Filing Form 8938 does not relieve U.S. income taxresidents of obligation to le FBAR (Form TDF 90-22.1) if FBAR ling is otherwise due.
Crml Plt
Unreported income, undisclosed foreign nan
-
cial accounts, and undisclosed foreign nancial as
-
sets subject U.S. taxpayers to criminal penalties.
Unreported Income
Internal Revenue Code (“Code”) section 7201,Tax Evasion (Willful Evasion of Tax): up to ve years in prison; a ne of up to $100,000 (indi
-
 vidual), $500,000 (corporation);Code section 7212, Obstruction (Impede TaxCollection): up to three years in prison; a neof up to $5,000;18 U.S.C. §371 Conspiracy to Impede Tax Col
-
lection (separate charge of impeding): up tove years in prison;Code section 7203, Failure to File Tax return:Up to one year in prison; a ne of up to $25,000(individual); $100,000 (corporation);Code section 7206(1) Filing a false tax re
-
turn: up to years in prison and a ne of up to$250,000.
FBAR Violation
31 U.S.C. §5322(b) and 31 C.F.R. §103.59(c):willful violation up to 10 years in jail and a$500,000 ne.
Foreign Account Tax Compliance Account (FATCA) Form 8938 
Taxpayers who fail to le Form 8938, report anasset, or have an underpayment of tax may besubject to criminal penalties.
Cl Plt
FBAR (Willful Failure To File)
Civil penalty is the greater of $100,000 or anannual penalty of 50 percent of the greatestamount in the account. The 50 percent pen
-
alty is imposed for each year there is no FBARled for the foreign nancial account, so if theFBAR is not led for four years, the penaltyis 200 percent of the highest account balance(e.g., if the highest account balance is $1 mil
-
lion, the penalty for four years of non-FBARling, is $2 million).
FATCA (Form 8938)
Taxpayers who fail to le Form 8938, fail to re
-
port an asset, or have an underpayment of taxmay be subject to civil penalties;A 40 percent accuracy-related penalty for un
-
derpayment of tax attributable to an undis
-
closed foreign nancial asset understatement;
or
A 75 percent fraud penalty for underpaymentof tax due to fraud.

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