At the fall meeting of the ABA tax section, government officials from Department of Justice and IRS speaking on a panel addressing offshore accounts and FBAR filing requirements were almost gleeful about their prospects for finding out just who has been hiding money away offshore. Even the practitioners on the panel were joining in the clear message--if your client has an undisclosed foreign bank account, you'd really better be trying to get disclosure done or his goose may be cooked. Disclose voluntarily, and you probably face only low fines. Wait and be found, and you may go to jail, plus pay 50% of the account balance for open years.
To a packed audience (very unusual for a Saturday panel), the government speakers noted their clear delight with the unprecedented release by UBS of banking account information and the agreement, in response to the summons, to release information on more than 4000 additional accounts/accountholders. By the way, we're not only going after account holders, they noted, but also their bankers and lawyers. And everybody we go after is being asked to give us names of anyone else they know about.
It's like that "six degrees of separation from everybody on the planet" idea. Once the DOJ has its foot in the door, it has a good chance of kicking it wide open and revealing everything that is inside. A person with an account can lead to a party in Hong Kong that helped the person establish a corporation to hide assets. That party in Hong Kong can lead to 40 more people who hid assets, each of whom may provide a link to another party in the secrecy parade who can provide links to yet more individuals who hid assets. While one suspects that the accounts revealed by UBS will be the largest ones and ones that expressly stated that they did not want their tax information revealed to the US, the account holders who are revealed through the investigative tracing of these many revealed links will also include a number of relatively small fry. So those who established such accounts should come clean by the "last chance" October 15 deadline. Or else they are playing a very high risk version of the audit roulette.
At the session, it was particularly interesting to see the kinds of cases that the practitioners thought were sympathetic. Every attendee that I talked to told me that they had "lots" of clients struggling with the question whether to come forward voluntarily or not. (Many of these practitioenrs with FBAR clients were as gleeful as the government reps--there is business to be had doing tax law, they told me, even in down times. Something of which I frequently remind my students...)
One or two said their clients had quite substantial sums secreted abroad and were trying to decide the odds of their being revealed as the DOJ investigation goes forward: it was clear that, for these clients, there was no desire to comply with the law, no valuing of the integrity of the tax system, but rather it was purely a matter of self-interest and the odds of getting caught (and paying, perhaps with a criminal prosecution) versus continuing to enjoy the tax-free status of income on the secret offshore account. One doesn't feel much sympathy with such taxpayers. I could only think to myself "Go, DOJ." Hope those leads take you to these guys."
But several said they thought their clients had good cause for not having reported the accounts--they were elderly Jews who had left Europe to avoid the Holocaust and just never had done anything about accounts left behind, or they were unsophisticated taxpayers who'd inherited a small account and simply had no idea about the reporting requirement, or the accounts didn't really earn much income anyway, etc. One came to the mike to ask about her client, who had immigrated to the US from a home country where the client felt politically persecuted. The client had left family behind. The client happened to have some money (I got the impression the figure was perhaps one or two million but I'm not sure that was stated and I don't have the audio tape) in a foreign bank account that had never been declared in the US. The client indicated to the tax adviser that he didn't use it for himself but, according to the practitioner, had retained signing authority on the account since his folks back home really needed the money and he was the only one who could safely sign for the money and have it made available to them. This sounds like a more sympathetic case--maybe even one in which DOJ prosecutorial discretion might come into play. Interestingly, a panelist was not so accepting of the tale. Noting that clients almost always seem to claim some sympathetic reason for having the account, he added that almost always when you dig deeper into the facts you find some additional information that may not be so sympathetic--for example, that the client used the funds in the account for himself. And the government authorities reiterated that the voluntary disclosure program was for a specific penalty, and that should be contrasted with the potential for much stiffer penalties and even criminal prosecution if the taxpayer doesn't take advantage of the voluntary disclosure program.
The DOJ is continuing to build pressure on taxpayers to come forward. Just yesterday, we learned about the guilty plea of retired Boeing sales manager Roberto Cittadini, who secreted nearly $2 billion through UBS using a Hong Kong corporation set up with the help of the Swiss banker Schumaker (already charged in August) and Swiss lawyer Rickenbach (also indicted in August). Cittadini was accused of filing a false tax return and failing to report the account. He faces up to 3 years in jail and a fine of $250,000 as well as a civil penalty of 50% of the highest account balance between 2001-2007, per the DOJ release. See Former Executive Guilty in Swiss Tax Scheme, NY Times, Oct. 5, 2009.