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IRS Commissioner Doug Shulman reports that nearly 15,000 taxpayers turned themselves in under the service’s amnesty program for people who had failed to report overseas bank accounts on their federal income tax returns. A major inducement was the government’s settlement with Swiss bank UBS, under which the bank promised to hand over information on about 4,500 American account owners. More than 80 percent of the amnesty filings came after the IRS announced that settlement.
So why did more than 12,000 people fess up after they learned that UBS would report fewer than 5,000 of them? The key was that the IRS didn’t reveal the criteria UBS would use to pick accounts. Not knowing whether they were on the UBS list likely induced a lot of people to take advantage of the limited-time deal the IRS offered.
In a November 17 briefing, Shulman spelled out the UBS criteria, which surely exempted lots of accounts. UBS limited its list of accounts to those with balances of at least 250,000 Swiss francs (about $248,000) or annual revenue of at least 100,000 francs (about $99,000). But even for those accounts, owners had to have engaged in “fraud and the like” before the bank ratted them out—and UBS appears to have defined that phrase rather tightly. Hiding ownership through off-shore shell companies or using debit or credit cards to disguise withdrawals got you on the list. Simply owning an account did not. (Read more detail on the UBS criteria in David Hilzenrath’s story in the Washington Post.)
Last month Shulman said that people applying for amnesty reported account balances ranging “from just over $10,000 to over $100 million.” UBS apparently won’t report taxpayers—or should I say non-taxpayers—with accounts toward the lower end of that range. Some, perhaps many, of those who turned themselves in could have continued to hide their overseas assets without fear of being revealed, if only they’d known the UBS rules.
It’s likely that many people took the amnesty option to help them stop doing something they knew was wrong, even if they didn’t think their banks would report them. And others may have felt that UBS was only the first of many foreign banks that the U.S. will force to reveal account owners and decided to get in under the amnesty.
But because neither UBS nor the IRS explained the criteria during the amnesty period, a lot of people must have reported themselves for fear they’d show up on the UBS list.
Good move, IRS.
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