UBS warns U.S. clients as tax amnesty nears end

WASHINGTON Fri Sep 18, 2009 4:06pm EDT

The logo of Swiss bank UBS can be seen outside its New York office August 12, 2009. REUTERS/Lucas Jackson

The logo of Swiss bank UBS can be seen outside its New York office August 12, 2009.

Credit: Reuters/Lucas Jackson

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WASHINGTON (Reuters) - UBS AG has formally warned wealthy American clients that their secret Swiss accounts may be revealed to U.S. tax authorities after next Wednesday's expiration of a U.S. amnesty program.

A UBS letter obtained by Reuters tells clients their accounts fall under a deal signed in August that ended a long-running dispute with the U.S. government over off-shore assets of U.S. clients.

The letter lands in the mailboxes of rich Americans as they decide whether to participate in the U.S. Internal Revenue Service's amnesty program -- a chance to reveal income in tax havens such as Switzerland, Cayman Islands and Monaco while generally avoiding prosecution.

Lawyers said the UBS letters have been received by a cross section of clients -- even those with relatively modest assets of under $1 million.

"Everybody who was coming to my office last week, said 'it's not going to be me,'" said Bryan Skarlatos, a tax lawyer at Kostelanetz & Fink in New York.

In exchange for coming clean by the September 23 deadline, individuals pay back taxes and a reduced fine, while generally avoiding criminal charges.

After months of tortuous negotiations that involved the Swiss government and challenged the country's tradition of banking secrecy, UBS agreed in August to disclose the names of 4,450 American holders of secret accounts at UBS.

The letter obtained by Reuters said the IRS is seeking information about those with direct accounts at UBS in Switzerland and those who owned accounts indirectly through an off-shore company. The letter was dated September 10.

William Sharp, an attorney at Sharp Kemm in Tampa, Florida, who represents American clients of UBS and was in Switzerland this week, said UBS transferred the first 500 files to Swiss authorities on September 11.

When the IRS amnesty program expires, tax cheats face more costly penalties as well as possible criminal prosecution.

"These people are panicking," said Paul Behling, a lawyer with Withers Bergman, a firm working on about 300 such cases worldwide. "Basically it's a rush for them."

UBS' four-page letter spelled out a process it said may "ultimately result in the submission of your account documents ... to the IRS (U.S. Internal Revenue Service) and the loss of the opportunity to participate in the IRS Voluntary Disclosure program."

The letter advises clients they have 20 days to hire a representative, or be assigned one by Swiss authorities who will be processing the names. It gives them a choice of having UBS act as their agent as well.

The IRS refuses to say how many tax amnesty applications have been filed. However, the agency did say that during a single week in July, about 400 individuals turned themselves in under the program, four times higher than the number of tax evaders coming forward in all of 2008.

MORE PROSECUTIONS SOON?

By coming forward voluntarily, individuals significantly minimize penalties.

A taxpayer with about $1 million in an offshore account for six years would pay about $386,000 under the amnesty program, compared with $2.3 million under the normal regime, according to an IRS example.

As part of the settlement with the U.S. government, UBS promised to hand over the first 500 of the 4,450 names to the Swiss authorities within 60 days. The Swiss would then evaluate the cases and forward them to U.S. officials.

IRS Commissioner Doug Shulman in August urged investors with money or securities in overseas accounts to step forward before the deadline. "No matter what institution you're with, the IRS is willing to pursue both the institution and the individual," Shulman said.

At one time, the 4,450 accounts were worth as much as $18 billion, the IRS said.

Owners of the accounts have the option to appeal their case in the Swiss legal system, but names may still be forwarded to the U.S. government while that process plays out.

In February, UBS agreed to pay $780 million to settle criminal charges that it had helped American clients evade taxes on about $20 billion concealed in offshore accounts.

Late last month, the U.S. government said it was building criminal cases against more than 150 American clients of UBS. The number of criminal probes is expected grow.

"These are easy cases to prosecute," said Christopher Rizek, an attorney at Caplin & Drysdale and former Treasury Department official in the Clinton Administration. "We know as a fact that cases are being packaged and sent to (Department of) Justice now."

(Additional reporting by Paschal Fletcher; Editing by Julie Vorman, Steve Orlofsky and Tim Dobbyn)

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