Court Allows the IRS to Issue John Doe Summons to UBS

Bloomberg is reporting that a federal judge has directed the Internal Revenue Service (IRS) to issue a summons requiring the Swiss bank Union Bank of Switzerland (UBS) to produce information about U.S. taxpayers who were trying to evade U.S. income taxes by holding accounts at other Swiss banks that did business with UBS.

U.S. District Judge William H. Pauley III signed an order in Manhattan federal court that authorized the IRS to serve a summons on UBS, the largest Swiss bank. The tax agency seeks records of Wegelin's correspondent account at UBS, according to the Jan. 25 order announced yesterday.

Those records will allow U.S. authorities to determine who held assets at Wegelin and other Swiss institutions using the UBS account, according to U.S. Attorney Preet Bharara. Wegelin admitted on Jan. 3 that it helped U.S. taxpayers hide more than $1.2 billion in assets from the IRS.

On January 3, 2013, Wegelin, Switzerland's oldest bank, pleaded guilty to conspiracy to hide more than $1.2 billion in secret Swiss bank accounts and to conceal income from the IRS. As part of its guilty plea, Wegelin agreed to pay approximately $20 million in restitution to the IRS and an additional $22.05 million criminal fine.

The Department of Justice (DOJ) and the IRS are using a "John Doe summons" to compel UBS to produce the bank account records of U.S. taxpayers. In 2009, UBS agreed to pay $787 million as part of a deferred prosecution agreement, and later agreed to provide the identities of up to 4,450 U.S.-based clients with undeclared bank accounts.

An IRS John Doe summons is any summons to a third party where the name of the taxpayer under investigation is unknown and therefore not specifically identified. The purpose behind a John Doe summons must be to investigate the tax liability of a specific unidentified taxpayer(s). The IRS may also use the John Doe Summons for the secondary purpose of gathering information for research purposes. A John Doe summons, however, can only be served after approval by a federal court.

Bloomberg quotes US Attorney Preet Bharara as saying:

The summons is "the latest step in our efforts to identify and prosecute U.S. taxpayers who think they can evade their legal responsibility to pay taxes by secreting their money away in anonymous offshore account at Wegelin and other banks."

U.S. tax law requires U.S. taxpayers to pay taxes on all income earned, whether or not it was earned in the United States. U.S. taxpayers must also report foreign financial accounts if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year. A deliberate failure to report a foreign account may result in a penalty of up to 50 percent of the amount in the account at the time of the violation.

Click here to read the entire Bloomberg article.

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