Federal Court Authorizes IRS to Issue “John Doe” Summons to UBS
The Internal Revenue Service (IRS) and the U.S. Department of Justice (DOJ) continue to actively seek information about U.S. taxpayers with interests in foreign accounts. The IRS and the DOJ sought a “John Doe” summons for the Swiss bank UBS AG. A “John Doe” summons issued to a financial institution generally requests information identifying U.S. taxpayers with account holdings or signature authority without knowing the names of the taxpayers whose information the IRS is seeking. This is a powerful tool which allows the IRS to gather information, including names and account information, of U.S. taxpayers with foreign accounts hoping to “wait out” the IRS and avoid making a voluntary disclosure.
A taxpayer who willfully fails to disclose interests in foreign account(s) on Form TD F 90-22.1 Foreign Bank Account Report (FBAR) faces a civil penalty equal to the greater of $100,000 or 50% of the foreign financial account balance as of the June 30th FBAR due date. Willful violation of the FBAR requirements is also a felony, and punishable by up to five years in prison, a fine not to exceed $250,000, or both. Non-willful noncompliance can be punished with a maximum penalty of $10,000 per violation. For an individual who is noncompliant for a number of years, these penalties can quickly exceed the total account balance.
On January 28, 2013, the United States District Court for the Southern District of New York authorized the IRS’ issuance of a “John Doe” summons to UBS AG to produce information relating to United States taxpayers. The “John Doe” summons seeks identities and information on clients using a correspondent account in the United States which was monitored, maintained or managed through Wegelin & Co. (“Wegelin”).
On January 3, 2013, Wegelin pled guilty to conspiring with U.S. taxpayers to evade U.S. taxes . In the plea agreement, Wegelin agreed to pay certain amounts to the United States, including amounts representing restitution to the U.S. for loss in tax revenue and forfeiture of fees paid to Wegelin by U.S. taxpayers from 2002 to 2010.
The “John Doe” summons allows the IRS access to information identifying those U.S. taxpayers with holdings in certain Swiss banks. Wegelin also permitted “other Swiss financial institutions…to use its UBS Correspondent Account,” the DOJ said in a filing.
Under FAQ 21 issued in connection with the 2012 Offshore Voluntary Disclosure Program (2012 OVDP), U.S. taxpayers may still be eligible for the 2012 OVDP and IRS criminal disclosure procedures, even if they are a member of the class identified in a “John Doe” summons. However, once the IRS has received taxpayer specific information regarding non-compliance with the tax laws or Title 31 filing obligations, that taxpayer will no longer be eligible for the protections of the 2012 OVDP or the IRS criminal voluntary disclosure procedure.
U.S. taxpayers with undisclosed foreign accounts, whether the institution servicing those accounts may be subject to a “John Doe” summons or not, should seek legal counsel immediately to evaluate whether they should apply to make a voluntary disclosure. Andreozzi Bluestein LLP can provide legal counsel regarding foreign accounts and the various compliance initiatives offered by the IRS. The voluntary disclosure initiatives offered by the IRS can provide protection against criminal prosecution and certainty regarding civil penalties.
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