February 4, 2010 - Phil Hodgen

Seventh guilty plea for a UBS customer

From today’s WSJ, a report about the seventh UBS case to end up with a guilty plea:

A Florida man pleaded guilty to filing a false tax return by failing to report income on money held in UBS AG (UBS) Swiss bank accounts.

Jack Barouh will be sentenced April 16 and he faces up to three years in prison, the U.S. Justice Department and Internal Revenue Service said Thursday. Barouh is free on $1 million bail.

UBS and the U.S. government have been at work regarding U.S. tax dodgers with accounts at the Swiss bank. The sides agreed in August to a deal in which UBS agreed to hand over the details of 4,450 offshore accounts held by U.S. taxpayers to Swiss authorities. After reviewing the cases, the Swiss pledged to give the names to the U.S.

However, a court last month found that disclosing the bank-account details violated Swiss banking-secrecy laws, resulting in the parties scrambling to save the deal.

In the Barouh case, he admitted Thursday to filing a false tax return for 2007 in which he failed to report that he had an interest in or a signature authority over accounts at UBS as well as not reporting income earned on his UBS Swiss bank accounts.

According to court documents, Barouh owned and operated several watch businesses and that starting in 1976 he skimmed income from the businesses and deposited the proceeds into his undeclared UBS bank accounts. The defendant also deposited unreported sales commissions into the accounts, the government said.

In addition to any jail sentence, Barouh has agreed to pay some $5 million, half the estimated amount he owned or controlled offshore, as well as any additional taxes, interest and penalties.

I don’t have further details about his case. However, I will be interested to see the specifics about the financial side of this guilty plea. Forfeiting half of the money overseas looks like the FBAR penalty. What’s included in the “additional taxes, interest and penalties” that Mr. Barouh will pay?

I am interested in this because it gives an indication of what might happen in the routine non-criminal cases of unreported offshore accounts with unreported income. Cases that end up with prison time for the taxpayer are the exception, so I treat them as the outer limit of reality for civil settlements.

One last thing I’m curious about. Was Mr. Barouh one of the unlucky 250 people whose names were turned over to the IRS in February 2008 in violation of Swiss law?

US Real Estate Investments Voluntary Disclosure