Americans who have been evading taxes through Swiss bank accounts are being advised by tax lawyers to come forward before the Justice Department steps up its own pursuit in response to Senate critics.
An Internal Revenue Service voluntary compliance program is already drawing between 400 and 500 people a month, U.S. Deputy Attorney General James Cole said during testimony before the Senate Permanent Subcommittee on Investigations yesterday. Cole was responding to criticism that the prosecution of offshore tax evasion had stalled.
Pressure is growing on prosecutors to advance the five-year probe of at least 14 Swiss banks including Credit Suisse Group AG (CS), the country’s second largest. The IRS will likely see more people coming forward to declare untaxed assets after the subcommittee this week released a scathing report and publicly grilled Cole and Brady Dougan, Credit Suisse’s chief executive, said Charles Rettig, a tax lawyer in Beverly Hills, California.
“These hearings, the constant actions by DOJ, the IRS and others are in the press, and they cause people to wake up and realize ‘you know, maybe I do have some problems,’” Rettig said in an interview.
Carl Levin, in the hearing yesterday, said prosecutors have only made “uneven and halting progress” in identifying U.S. taxpayers who used offshore accounts to cheat on taxes.
More Than 40,000
Cole, in his testimony, said 43,000 taxpayers have disclosed their offshore accounts to the IRS since 2009, paying $6 billion in back taxes and penalties. He also said 106 Swiss banks are seeking non-prosecution agreements from the U.S. in exchange for detailing how they enabled tax evasion. So far, 73 taxpayers and 35 enablers have been charged, Cole said.
“Just because we can’t disclose what we are doing doesn’t mean we aren’t actively pursuing cases,” Cole said in the hearing. “We fully expect additional developments over the coming months.”
The Justice Department has failed to use all its legal tools in its criminal probe of whether Credit Suisse, the second-largest Swiss bank, helped U.S. clients evade taxes, according to the subcommittee’s report. Lax enforcement also allowed Credit Suisse to turn over the names of only 238 U.S. account holders to prosecutors, which Levin, a Michigan Democrat who chairs the subcommittee, called “unacceptable.”
U.S. prosecutors became bogged down in negotiations with the Swiss government over information they sought from banks and have “failed to utilize available U.S. legal means to obtain the names of tens of thousands” of Americans who owe billions of dollars in taxes and whose identities are still hidden by the Swiss, according to the 176-page report.
Cole told the subcommittee that discussions with the Swiss were aimed at encouraging voluntary disclosure by account holders, prosecuting account holders who fail to come forward, and learning where else in Switzerland and the world U.S. taxpayers attempted to use secret accounts to engage in tax evasion.
The department and the IRS can’t go after every individual tax scofflaw so the voluntary disclosure program offers some means of enforcement without a drag on resources, said Scott Michel, a lawyer at Caplin & Drysdale in Washington. Aggressive enforcement by the department either through subpoenas or attempts to sanction banks would hurt efforts to work out reporting agreements with the Swiss and other countries, he said.
“The U.S. has won this war,” Michel said in an interview. “This is over. All we’re talking about now is the cleanup of the past.”
The U.S. crackdown on offshore tax evasion accelerated after 2009, when UBS AG (UBS), the largest Swiss bank, avoided prosecution by paying $780 million, admitting it fostered tax evasion and turning over the names of 4,700 account holders.
Levin said that people only entered the voluntary disclosure program after they feared that UBS would turn over their account information to the U.S. government, exposing them to possible prosecution.
“We collected $6 billion from people who were evading taxes who were afraid that their names would get out there,” Levin said to Cole. “They’ve got to pay the price. They’ve got to fear that.”
The hearing also highlighted a proposed amendment to a U.S.-Swiss tax treaty that lawmakers and witnesses said would make it easier for Swiss banks to hand over data on thousands of Americans with accounts hidden from the IRS. That measure, however, is being blocked by Senator Rand Paul, a Kentucky Republican, who has said it would threaten American’s rights under the U.S. Constitution.
“I think it would go a long way to dramatically expanding the access to names here,” Michel said.