Aug. 20 (Bloomberg) -- An agreement by UBS AG, Switzerland’s largest bank, to reveal data on 4,450 accounts may lead to a larger crackdown on tax evasion by banks and lawyers, said U.S. Internal Revenue Service Commissioner Douglas Shulman.

UBS agreed yesterday to hand over the information to settle a U.S. lawsuit seeking the names of Americans suspected of evading taxes through 52,000 Swiss accounts. The bank will give the material to the Swiss government, which would then determine how much will go to the IRS.

The U.S. sued UBS on Feb. 19, a day after the bank agreed to provide the names of 250 account holders and pay $780 million to avoid prosecution for helping wealthy Americans evade taxes. UBS clients have until Sept. 23 to disclose their accounts and avoid prosecution. The U.S. lawsuit and voluntary disclosures have helped the IRS widen its net beyond UBS, Shulman said.

“We’re finding out about financial institutions that facilitated tax evasion and we’re going to pursue them,” he said in an interview with Bloomberg Television. “We’re finding out about other intermediaries, like law firms and others who promoted tax evasion.”

The six-month legal battle put unprecedented pressure on the Swiss government, which had said the U.S. lawsuit could force UBS to violate national laws making disclosure of secret account data a crime.

“Getting 5,000 names from one financial institution blows a big hole in bank secrecy,” Shulman said. “It’s clearly a victory for the U.S. government to gain access to a nook and cranny of the financial system that we haven’t been able to gain access to in the past.”

Risk Prosecution

Thousands of Americans now must choose whether to disclose accounts to the IRS, paying back taxes, fines and penalties, or keep their assets undeclared and risk criminal prosecution.

The IRS agreement follows the bank’s admission on Feb. 18 that it helped Americans evade taxes, and the prosecution of two UBS bankers and four U.S. clients. One of those bankers, Bradley Birkenfeld, 44, pleaded guilty to conspiracy and has cooperated with prosecutors. He faces up to five years in prison when he is sentenced tomorrow in Fort Lauderdale, Florida.

In recommending a three-year prison term for Birkenfeld, the Justice Department said in a court filing this week that it is criminally investigating 150 UBS clients. Three have pleaded guilty to filing false tax returns and a fourth was charged last week with failing to file a tax report for an offshore account.

Pursue Wrongdoing

Shulman said the IRS has “been given hundreds more attorneys, investigators, agents to pursue wrongdoing.” He urged Americans with offshore accounts to come clean by Sept. 23 or risk prosecution.

“If in the past you’ve been hiding assets overseas and thought those assets were safe and we weren’t going to find them, those days are coming to an end pretty quickly,” he said.

He declined to say how many have volunteered the information so far. As for the 4,450 accounts covered by the accord, he said they had assets worth about $18 billion at one time and included a range of securities, commodities and cash.

A pair of agreements signed yesterday outline the process by which the U.S. will make a treaty request for the data, UBS will hand it to the Swiss government, and the Swiss will decide whether to give it to the IRS. That process will take up to a year and allows UBS clients to appeal the determination.

UBS will inform affected customers they have a right under Swiss law to appeal to the Swiss Federal Administrative Court to keep their accounts secret. The account holders also will be told they are required by U.S. law to notify the Justice Department of any appeal.

Tax Fraud

The agreement also broadens the definition of tax fraud, a crime in Switzerland. Tax evasion isn’t a crime there. The settlement also lets the U.S. seek unnamed account holders, a move to help override the current prohibition against such blanket inquiries.

Michigan Democrat Carl Levin, who heads the Senate Permanent Subcommittee on Investigations, said the accord doesn’t do enough. It “is at most a modest advance in the effort to end bank secrecy abuses,” he said. “It will take a long time before we know whether this settlement will produce meaningful gains.”

“This has cracked open a window that’s been shut for a long time,” said former IRS Commissioner Charles Rossotti, a senior adviser at the Carlyle Group. He urged the Obama administration to give the IRS “the resources it needs to solve this huge problem.”

The agreement lets the U.S., the Swiss and UBS claim victory, said Charles Falk, a lawyer in Mendham, New Jersey, who represents 35 UBS clients.

“It gives the U.S. what it wants, which is names,” he said. “It gives the Swiss what it wants, which is an affirmation of bank secrecy. It gives UBS the ability to now go out and deal with its other issues, which are many.”

The case is U.S. v. UBS AG, 09-cv-20423, U.S. District Court, Southern District of Florida (Miami).

To contact the reporters on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.netDavid Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Carlyn Kolker in New York at ckolker@bloomberg.net.

Last Updated: August 20, 2009 00:01 EDT