Americans with offshore bank accounts were scrambling ahead of an amnesty deadline Wednesday to square up back taxes and avoid a likely wave of prosecutions following a disclosure agreement with Swiss bank UBS.
US authorities are moving to crack down on overseas accounts for tax evasion, as highlighted by the settlement with UBS last month to reveal the identities of some 4,450 of its American clients.
The landmark settlement challenged Switzerland's longstanding banking secrecy tradition and was expected to open the door to more prosecution efforts for tax evasion.
Legal experts say the threat of prosecution after the September 23 deadline may prompt a mad rush of Americans with accounts at UBS and other Swiss banks or in other offshore havens to come forward.
"I think there will be thousands, possibly tens of thousands coming forward," said Bill Winter, a tax lawyer with the firm Morris Manning & Martin in Atlanta, Georgia.
Winter said many offshore account holders want to settle with US tax authorities to avoid the prospect of criminal prosecution or stiffer financial penalties.
"Many of the people are not at UBS or other Swiss banks, but they believe that if UBS was first, they will be next," Winter said.
"The sense now is that bank secrecy is a thing of the past. The UBS case brings that message home." The Internal Revenue Service is also driving that message with a tough line on offshore tax avoidance. Several people have already faced prosecution for using or promoting offshore accounts with UBS.
IRS Commissioner Doug Shulman suggested there will be no leniency after Wednesday's deadline.
"The IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location," he said last month. "And we will work with other governments where possible to obtain the information we need. Wealthy Americans who have hidden their money offshore will find themselves in a jam."
The fate of the 4,450 people on the UBS list remained murky, legal experts said. Those UBS clients may ask for amnesty under the program but might not qualify if the government already has their names and has begun an investigation, say attorneys.
Brian Compton, president of the California-based consultancy Tax Resolution Services, predicted that "there will be a lot of prominent people caught up" in the tax net and that fears were running high.
"You could get 10 years in prison" for failing to file required reports, Compton said. "That's how seriously the IRS takes this." Someone with one million dollars offshore could face penalties totalling 380,000 dollars under the amnesty, according to Compton, but that could increase to more than 2.1 million dollars after the amnesty expires.
Compton said that persons who want to come forward for the amnesty program must follow rigid procedures to ensure they get favourable treatment.
"This is not something you do by yourself, you want a big-dog attorney with you," he said.
Washington tax attorney Kevin Thorn said a series of US agreements with other countries will make it easier for authorities to identify and prosecute US taxpayers hiding money and assets overseas.
Thorn said information-sharing agreements have been signed with Monaco, Gibraltar, Lichtenstein, Jersey, Isle of Man, Guernsey, Aruba, and the Bahamas.
"These agreements will significantly assist US authorities with asset collection efforts and criminal prosecution on otherwise untouchable offshore account holders," he said.
"Taxpayers need to understand that every day there are fewer and fewer places to hide." Mark Matthews, a former IRS deputy commissioner who now practices law in Washington, said the amnesty has drawn out wealthy people trying to hide assets but others as well.
"We see Holocaust money, we see long-time multigenerational money that the newest generation didn't even have any understanding about. There are a lot of sympathetic cases," he said.
Matthews noted that the rush to qualify for the amnesty may induce the government to extend the deadline.
"I'm sure there are limits, but it seems like a modest extension of 30 days doesn't frustrate the (government's) purpose and in fact might increase compliance and show a position of strength," he said.