UBS and U.S. reach deal on releasing client names to IRS

News reports this morning indicate that UBS (UBS) and the U.S, have initialed documents agreeing to a deal to turn over what will likely be thousands of names of UBS clients to the Internal Revenue Service. The actual number has not yet been released, but speculation earlier this week put that number at about 10,000 of 52,000 names that the IRS has asked for.

Federal District Judge Alan Gold had given the two sides until August 7 to agree to a deal or they would be back in court on August 10. Last Friday the two sides told the judge they were close and asked for more time.

The case turned into a major diplomatic incident. U.S. Secretary of State Hillary Clinton met with Swiss foreign minister Micheline Calmy-Rey on July 31. The Swiss had threatened to seize the bank records of UBS if a U.S. court orders the names of banking clients to be released. The IRS wanted the names of 52,000 U.S. citizens or companies that bank with UBS. U.S. tax officials believe that UBS is hiding $20 billion of U.S. taxpayers' money in secret Swiss accounts.

Wealthy Americans who do not come forward prior to the release of names could face criminal charges for tax evasion if they did not report their foreign holdings on their tax returns. Many wealthy clients worried about being prosecuted declared their accounts in recent months. Prosecutors want to focus on several thousand ultra wealthy Americans with offshore accounts containing tens to hundreds of millions of dollars. About 30,000 of the 52,000 UBS clients in the U.S. are smaller, cash-only accounts and many of these smaller account holders have already repatriated the money into U.S. banks. So if the U.S. does get 10,000 names they'll certainly be close to reaching the goal set.

This will be the second settlement by UBS with the IRS. In February, UBS agreed to pay $780 million to settle tax evasion charges on nearly $20 billion hidden in offshore accounts.

This case has big implications not just for the other Swiss banks, but also for banks in other countries with similar banking secrecy laws. The U.S. has taken the lead in breaking the secrecy barriers, but other countries will probably follow with their own lawsuits. It's estimated that $2 trillion of foreign wealth is managed by the offshore banking industry.

Lita Epstein has written more than 25 books including Trading for Dummies.

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