Remember that great scene in the movie Footloose when Kevin Bacon is challenged to a game of chicken on the tractor?
It seems that the Internal Revenue Service (IRS) is playing a little chicken of its own with taxpayers…
The IRS has entered into a settlement with UBS to divulge the names of about 4,450 account holders at the Swiss bank who are thought to have undisclosed assets. The accounts are said to have held about $18 billion at one point.
UBS is turning over 4,450 accounts. They’ve already turned over a few hundred. However, there are about 52,000 accounts at UBS owned by US taxpayers. Do the math.
Account-holders will be notified before their names are released to the IRS but the process is expected to take several months. However, the Voluntary Disclosure Program offered by the IRS ends on September 23 – likely before the account holders will be made aware of whether their information is being released to the IRS.
If the IRS believes that the information released by UBS indicates fraud on behalf of taxpayers, it will vigorously enforce the payment of back taxes, plus penalty and interest. Prosecution will be considered, if appropriate.
On the other hand, if taxpayers come forward under the Voluntary Disclosure Program, they can avoid prosecution and mitigate penalties.
So, the IRS is leaving UBS account holders with an interesting dilemma: come forward now or take your chances that your name isn’t in the pile. Who will blink first?
What is the theory of taxpayer liability?
Couple of things but the biggie is that, under the Tax Code, taxpayers are required to report worldwide income whether or not it’s taxable. Some of the income may qualify for tax treaty treatment or tax credits but it doesn’t excuse the taxpayer from reporting the income. My guess is that with 4,500 account holders hiding more than $18 billion, a number of them are likely over the credit amounts… 😉
Additionally, there is a requirement to report foreign accounts exceeding $10k under FBAR.