Legal News

Taxmen Hit Bigtime in UBS Case; Foreign Banks Drop U.S. Clients

By Jennifer Forsyth

Do you listen to Federal News Radio?

LB doesn’t either. But if we did, we might have stumbled on a recent interview with IRS lawyer John McDougal. He explained that he became interested in working at the IRS after clerking there while attending law school at the College of William and Mary in Virginia. Think about it. How often do you hear someone explain why they wanted to work for the IRS?

That’s why for John McDougal (pictured) and IRS Agent Daniel Reeves, the two men whose detective work led UBS to agree to a $780 million criminal settlement earlier this year and turn over the names of about 250 UBS clients, the sudden attention must be like being in the federal version of the Superbowl. The current battle involving the U.S., UBS and the Swiss government concerns the identities of an additional 52,000 clients the IRS wants to investigate for tax evasion.

The agents’ photos, along with a story, are front and center of the Money & Investing section of the WSJ. In the WSJ story, the two men, who spoke at an April conference organized by the financial crime publication Offshore-Alert, spoke about a playbook for chasing tax evaders, though they didn’t specifically discuss the UBS case.

Wrote WSJ: “The IRS investigation has peeled back decades of Swiss secrecy, detailing how UBS recruited clients in Miami and how UBS used a secret email code—the color orange for Euros, green for dollars–to discuss transactions. An amount of one million was called a `swan.’”

According to the story, the crux of the IRS case is a John Doe summons, which after being approved by a federal judge allows the IRS to request a wide amount of information about unknown parties. If the company that receives the summons doesn’t comply, the government can ask a court to enforce it. In July 2008, UBS got one. But last week, the Swiss government unexpectedly said it was prepared to take control of UBS customer data and prohibit the company from complying with any summons. Meanwhile, settlement talks among UBS and the U.S. and Swiss governments continue. (Prior LB posts here, here and here.)

LB readers interested in the UBS summons might also note the WSJ’s editorial today titled “Picking on the Swiss.” The piece cites an affidavit by Swiss authorities stating that the summons “does not identify any facts that could be construed as constituting tax fraud or the like, but rather makes a broad demand for the identity of all U.S. taxpayers for which certain forms have not been filed.” The editorial warns that the government’s request for so broad a swath of information “could well run afoul of the Fourth Amendment’s protections against unreasonable search.”

Also, USA Today had this story saying that Credit Suisse and HSBC–hoping to avoid a UBS situation–in recent weeks have notified American clients they must close their offshore accounts or transfer them to the institutions’ U.S.-based operations, where tax reporting requirements are far stricter.

Full post as published by Law Blog - WSJ.com on July 14, 2009 (boomark / email).