IRS Sharpens Tools in Pursuit of Alleged Tax Violations

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Two recent court cases - one that received much press and another less-publicized case - both demonstrate the IRS's aggressive stance on investigating alleged tax violations and the degree to which the courts will bless such conduct over the protests of corporate and individual taxpayers.

The much-publicized case is the civil suit brought by the United States Department of Justice against Swiss banking giant UBS AG ("UBS") to force UBS to disclose names of account holders who may have used Swiss UBS accounts to evade the tax laws of the United States. Previously, UBS also had been under criminal investigation by federal prosecutors in a case that was settled in February 2009. While no criminal charges were brought against the bank in that criminal action, in February UBS agreed to pay $780 million to settle charges that it helped wealthy Americans evade taxes on nearly $20 billion hidden in offshore accounts. One day later, the Justice Department filed a civil suit seeking to force UBS to disclose 52,000 client names associated with the offshore accounts. Initially, the bank and the Swiss government took hard-line stances against the civil suit. UBS resisted disclosure, arguing that doing so would cause it to violate Swiss banking laws. The Swiss government also said it would block UBS from turning over the names if ordered to do so, while the Justice Department said that it might consider indicting the bank if it refused to do so upon a judge's order. UBS and the Swiss government argued in the tax-evasion case that Swiss bank-privacy law meant the bank couldn't hand over the account identities.

The settlement signals that UBS and the Swiss government appear to have combed through the taxpayer bank files and have identified enough potential fraud to make them willing to hand over information about certain accounts. (Swiss laws don't provide confidentiality if people engage in fraudulent activities.)

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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