Swiss banks have long held a reputation for being the place to go for secrecy. The mystique may, however be crumbling. Last month a District Court judge in Miami, Florida granted an Internal Revenue Service John Doe summons request. The court ordered UBS to turn over records with the names of US taxpayers who requested their accounts be kept hidden from the IRS. Undoubtedly the IRS believes that these taxpayers may have committed tax evasion by failing to report income. U.S taxpayers who have foreign bank accounts are generally required to report income from those accounts on their U.S. tax returns. In addition, they are required to declare the existence of these offshore bank accounts on their tax returns, and they are required to file Form TDF 90-22.1. Failure to file the Form TDF 90-22.1 can result in both criminal tax penalties, and civil tax penalties. The criminal tax penalties can result in a fine of not more than $ 250,000, or five years in prison, or both. 31 U.S.C. 5322(a).
The IRS has long had a voluntary disclosure program which provides some assurances to taxpayers who wish to go confess their sins to the IRS, before the IRS knows they have comitted tax fraud . It is questionable whether taxpayers who are clients of UBS meet the requirements of the voluntary disclosure program. Nevertheless there still may be room for avoiding tax evasion charges.
Still the civil tax penalties can be quite onerous. For willful violations occurring prior to October 23, 2004, a penalty not to exceed the greater of an amount equal to the balance of the account at the time of the violation (not to exceed $100,000) or $25,000.
For willful violations occurring after October 22, 2004, the maximum penalty is increased to the greater of $100,000, or 50 percent of the amount equal to the balance of the account at the time of the violation. 31 USC 5321(a)(5).