As part of a voluntary program that ended on October 15, some 7,500 Americans with hidden offshore bank accounts ended the game of hide and seek with the IRS. They finally decided to tell the government where to find their assets. Some of these hidden accounts were pretty hard to lose track of --- one had more than $100 million in it.
The IRS had given these suspected tax evaders plenty of time to come forward. The agency opened a generous amnesty program in March and extended it in September. By voluntarily reporting the account, the account holders will still be subject to stiff penalties, but they are not likely to go to jail.
Any American who has an offshore bank account with more than $10,000 in it at any time during the year must report that account and pay taxes on the income earned on it. Failure to come forward is a high-stakes gamble. Those who decide to take their chances risk not only losing the entire account through penalties and interest but also a possible jail sentence.
IRS Commissioner Douglas Shulman has made no doubt about his intent to punish tax evaders and their enablers. Shulman said the IRS would be "scouring the 7,500 disclosures to identify financial institutions, advisers and others" who helped taxpayers break the law.
The IRS commissioner seems serious about going after secret bank accounts wherever they are hidden. As he said in August when announcing an agreement with the Swiss to share banking account information, "this is no mere keyhole into the hidden world of bank secrecy. This agreement represents a major step forward with the IRS' efforts to pierce the veil of bank secrecy and combat offshore tax evasion. It's an historic development in our international efforts, and it helps build a solid foundation for addressing future offshore issues."
The IRS plans to hire 800 agents and open or expand offices in places like Hong Kong, Beijing, Panama City and Barbados to help investigate these offshore accounts.
Sen. Carl Levin, who heads the Senate committee that has been investigating offshore tax evasion that he estimates comes to $100 billion a year, is pleased that so many account holders have come forward. But, he is not convinced that all of the hidden offshore assets have been uncovered.
"We know, for example, that U.S. taxpayers stashed $18 billion in hidden assets at one Swiss bank alone; we need to measure the extent to which the voluntary disclosures and other civil and criminal cases capture that $18 billion as well as assets hidden at other offshore banks," he said in a statement.
Americans hide their assets in all corners of the globe --- those who come forward had accounts in 100 different banks in 70 different countries --- but most of the attention so far has focused on the Swiss banking giant UBS. In February, UBS admitted that it helped its clients evade millions in U.S. taxes. It agreed to pay a $780 million fine and turn over the names of around 4,500 of its U.S. clients to the American tax authorities.
As of October 5, six UBS clients had pleaded guilty to evading U.S. taxes on their hidden accounts. Each faces a maximum fine of $250,000, a 50 percent penalty on the highest value of the account, and a possible jail sentence of up to five years, depending on the case. Sentencing is scheduled in January.
One UBS client has already been convicted of tax evasion. Billionaire Igor Olenicoff pleaded guilty to hiding some $200 million in his offshore UBS accounts. He agreed to pay $52 million to settle his criminal tax case, will be on probation for two years and must provide 120 hours of community service.
The only jail sentence given so far is to Bradley Birkenfeld, the former UBS banker who pleaded guilty in June 2008 to helping his client, Olenicoff, evade roughly $7.2 million in U.S. taxes. Birkenfeld will start serving a 40 month sentence in January.
Birkenfeld is a key player in the IRS case against UBS. In 2007, Birkenfeld gave the Justice Department information about the UBS tax scam. He has filed a so-called whistleblower claim with the IRS in an attempt to claim part of the tax revenue that the government will collect due to his cooperation. The IRS does not comment on any cases. But, if the IRS rules that Birkenfeld meets the criteria to be a bona fide whistleblower, he could become a rich man. If he does, let's hope that he has the good sense to not open his account in Switzerland.