It's reported that the U.S. Internal Revenue Service is debating how to settle tax disputes with an unknown number of wealthy American clients who used offshore private banking services sold by UBS and some other foreign banks.
The unusual IRS internal discussion centers on the question of the high penalties — 50% annually of the sums in each account — typically imposed on money allegedly hidden offshore and not reported to the IRS. Americans who used undeclared bank or investment accounts for years could owe the I.R.S. many times the amounts in those accounts hold, even before back taxes, penalties and interest are calculated.
Some senior IRS officials want to offer a take-it-or-leave-it deal that allows clients to settle their tax debts in exchange for reduced penalties and possibly reduced tax payments. The IRS has used such deals, known as global settlements, in recent years to lure wealthy investors who bought mass-marketed, questionable tax shelters and people who used unreported offshore credit card accounts. The deals were a way for the IRS, which claims it lacks manpower and resources, to cope with its workload.
Don't Go It Alone
The alternative to a deal would be to rely on clients to come forward voluntarily, disclose their offshore accounts and pay their bills, a move that generally results in immunity from prosecution but preserves the higher penalties, which could deter people from coming forward.
Deal or no deal, there are dangers for taxpayers. If the IRS finds the taxpayer before the taxpayer contacts the agency, the individual is likely to be fully liable for taxes, penalties and interest, and face possible criminal prosecution.
One cardinal rule to keep in mind -- never approach the IRS yourself -- always insist that your tax attorney or CPA make the contact, no matter what your tax problem may be. (If you need professional help, we can recommend experienced tax lawyers and CPAs).
How Many?
The U.S. Justice Department argues that UBS, the huge bank based in Zurich that has extensive operations in the United States, helped as many as 17,000 of its American clients evade $300 million a year in taxes through hidden offshore accounts. The IRS has offered no proof for such numbers.
Justice now reportedly has expanded its criminal investigation into other foreign banks that sell offshore private banking service, including Credit Suisse and HSBC.
According to UBS it has discovered only a small number of tax-fraud cases as part of an investigation into whether the Swiss bank helped clients dodge American taxes. UBS asserts that Swiss bank-client confidentiality agreements have not been broken in the investigation of the bank’s activities.
Swiss bank secrecy laws forbid the release of any information unless the account holder is engaged in "tax fraud." Income tax evasion is not a crime in Switzerland. Tax fraud is.
IRS War Against Taxpayers
All this UBS ruckus is nothing new. The IRS has been engaged in a blatant, long-time attempt to blur the valid distinction between proper tax "avoidance" and illegal tax "evasion." Since the U.S. tax code is a complex morass, small wonder that resourceful tax experts try to interpret the Code to favor their taxpayer clients rather then surrendering to the IRS.
The attack on UBS account holders is another part of the highly aggressive IRS campaign against anything it just doesn't like or deems to be an "abusive tax shelter."
So aggressive, in fact, that the leading Washington, D.C. tax law firm, Caplin & Drysdale, a few years ago suggested that the IRS "objective is not to win in court, but rather to create an in terrorem effect." (The phrase "in terrorem" is Latin, meaning "so as to produce terror").
Tax Terrorism
In other words, this respected law firm thinks that the IRS is engaged in a form of tax terrorism, attempting to intimidate attorneys and tax accountants into failing to give even legitimate tax avoidance advice.
The problem is that the IRS sees any and every attempt legally to avoid taxes as tax evasion. What truly is "abused" are the enormous IRS investigative powers backed by U.S. Justice Dept. prosecutors.
A few years ago congressional hearings on the IRS exposed publicly what many Americans knew already: the IRS too often conducts its affairs like a financial Gestapo, running roughshod over citizens rights. The IRS still views taxpayers as adversaries, assuming them guilty until they can prove otherwise.
Real Tax Reform Needed
Admitting that our free spending, bail out everybody government badly needs revenue, everyone knows that the present bloated tax law is both costly and complex.
A few years ago congressional hearings on the IRS exposed publicly what many Americans knew already; the IRS too often conducts its affairs like a financial Gestapo, running roughshod over citizens rights. The IRS still views taxpayers as adversaries, assuming them guilty until they can prove otherwise.
The Sovereign Society always has advocated full compliance with U.S. and other national tax laws, including reporting requirements.
We don't know the truth of IRS charges against UBS and other offshore banks with American clients.
But we do know that American tax law supports the dictum of the late Judge of the U.S. Court of Appeals, Hon. Learned Hand, who wrote: "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible...nobody owes any public duty to pay more than the law demands." Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934), aff'd, 293 U.S. 465 (1935).
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