Thousands Come Clean as IRS Gets $2.7 Billion

The Internal Revenue Service has taken in a total of $2.7 billion from holders of offshore bank accounts, the agency said as it announced that 12,000 taxpayers responded to the second round of a partial amnesty program.

IRS Commissioner Douglas Shulman said yesterday that the agency’s emphasis on international tax enforcement prompted more people than anticipated to accept penalties and reveal their accounts.

“The results we’re seeing today were unthinkable just a few short years ago,” he said on a conference call with reporters. “The world has clearly changed.”

The results mark the continuation of the IRS’s beefed-up enforcement efforts, which include the voluntary programs as well as prosecutions with the Department of Justice.

“You’d have to be living in a hole not to know that the U.S. government is really focused on offshore tax evasion, getting better at it,” Shulman said.

He declined to comment on U.S. efforts to obtain account information from Swiss banks, other than to confirm that the U.S. and Swiss governments are discussing the issue.

“This effort was never about Switzerland,” Shulman said. “A lot of Swiss banks aren’t taking these kinds of accounts anymore, and they’re really trying hard to move forward.”

Deferred Prosecution

In 2009, the U.S. and UBS AG (UBSN) reached a deferred-prosecution agreement under which the bank paid $780 million. Since then, the U.S. has been prosecuting clients of UBS, HSBC Holdings Plc and other banks around the world.

Bloomberg News reported in June that information from hundreds of interviews of U.S. account holders in the voluntary disclosure program helped form the basis of an indictment of four Europe-based bankers at Credit Suisse Group AG in February and a U.S. civil action against HSBC Holdings Plc.

Tax lawyers differed over whether the IRS would offer a third program of reduced penalties to offshore bank clients.

Richard Sapinski, a lawyer at Sills, Cummis & Gross P.C. in Newark, New Jersey, said another partial amnesty program would undermine tax compliance.

“They probably would be very hesitant to have a third program,” Sapinski said. “It would be like catching a bus. You miss one and you wait for the next one.”

William Sharp, a partner with Sharp Kemm P.A. of Tampa, Florida and Zurich, said the IRS may not have a choice.

10 Banks

Sharp said U.S. authorities are poised to take enforcement action against as many as 10 banks, which he estimated could yield tens of thousands of previously undisclosed accounts held by U.S. citizens.

“It’s a function of the numbers; it’s a matter of sheer administrative necessity,” Sharp said. “There’s going to be a huge run for voluntary disclosure.”

The voluntary program allowed U.S. taxpayers with offshore accounts to come forward and pay back taxes and penalties to likely avoid prosecution.

The program’s initial round in 2009 yielded $2.2 billion in taxes, interest and penalties from 15,000 taxpayers, Shulman announced yesterday.

An additional 3,000 taxpayers came forward after that program ended, and 12,000 more declared accounts this year under the 2011 program, which had a deadline of Sept. 9 and less generous terms than the previous version. Shulman said the 2011 program has yielded $500 million so far, and he expects that to increase because the total doesn’t include many penalties.

Shulman declined to discuss the geographic distribution of those who participated in the 2011 program.

The total number of filers was “more than I expected in the second round,” said Mark Matthews, a Washington-based tax attorney at Morgan Lewis & Bockius LLP and a former IRS deputy commissioner. Overall, “a lot of practitioners think this was one of the most successful tax-compliance actions in history,” he said.

Matthews said he’d like the IRS to issue guidance now that the disclosure initiative has ended.

“What do we do now?” Matthews asked. Those who have come forward, he said, are “still only a fraction of the people who have these accounts.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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