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IRS sets up Global High Wealth Industry Group, seeks joint audits with other governments

UBS boss says governments must sort it out

by Sean Ecker with Ellen Wallace

Bern, Switzerland (GenevaLunch) – The Swiss government meets Wednesday 27 January to review the impact of a court’s decision last Friday, which asks the Federal Tax Administration to review the case of at least 25 UBS bank clients whose names were slated to be handed over to US tax authorities. The court ruled that a client’s failure to supply a bank with the American tax W9 form does not in itself constitute fraud (Ed. note: the US penalty for failing to supply the taxpayer identification number form is $50).

The court decision raises questions about the 4,450 names Switzerland has agreed to review for the IRS tax authority: people who are suspected of having committed tax fraud, as opposed to tax evasion.

The review, in answer to requests by the US for judicial assistance, was agreed to as part of the August 2009 bilateral double taxation agreement worked out by Switzerland and the US.

UBS chairman Kaspar Villiger, a former member of the Swiss government, told newspaper Tagesanzeiger Wednesday that the court has complicated the matter, but that it is up to the two governments to resolve problems the ruling may have created. Christoph Bandli, head of the Federal Administrative Court, told SonntagsZeitung Sunday that if the Swiss Parliament revised the law so that tax evasion becomes the more serious crime of tax fraud, this would end such disputes with the US. There is not strong evidence the Swiss population would support this: the relatively straightforward tax filing system in Switzerland does not include a complex package of tax deductions comparable to those accepted by the IRS.

The court’s decision has sparked Swiss and international media speculation about the viability of the agreement itself. International reporting is laced with confusion over Swiss banking secrecy laws and even major media repeat a misunderstanding that Switzerland agreed to turn over rather than review 4,450 names. The agreement states that Switzerland “has 360 days in total to make a final decision on whether the requested information may be issued in each of the 4,450 cases.’ But the media stories do underscore deep differences that remain between the two countries over several issues: privacy, what constitutes fraud, and taxing individual and corporate wealth when the two are closely intertwined.

IRS Commissioner Shulman looks to great government cooperation

The IRS is gaining valuable information from the more than 14,700 errant taxpayers who voluntarily disclosed themselves to the US tax authority before mid-October 2009, says IRS Commissioner Doug Shulman. He told the New York State Bar Association Taxation Section in New York City Tuesday 26 January that the information is allowing the IRS to identify patterns of conduct at financial institutions. It has helped the IRS to better understand how they work and has provided the names of individual financial advisers.

The IRS has set up a Global High Wealth Industry Group, says Shulman, to focus on wealthy individuals and the corporate entities they use as tax shelters. The group was established in late 2009 and will initially focus on “individuals with tens of millions of assets or income”. The IRS strategy involves concentrating on “nodes of activity” where possible tax evaders concentrate their activities. Shulman says that financial institutions and “promoters of evasion schemes” are being looked at most closely.

The IRS is also looking at cooperation with foreign tax authorities and is developing with them ways to conduct joint audits of corporate taxpayers. This would reduce the need for multiple audits, one in each jurisdiction, and would ensures that both tax authorities obtain the same information.

Links to other sites: Business Week/AP, Reuters, swissinfo, Wall Street Journal blog