IRS Loses Big in Tax Evasion Trials

Back in 2007, the IRS and U.S. Department of Justice (DOJ) were hot on the heels of Switzerland-based mega financial institutions like UBS, Credit Suisse, and Wegelin for assisting wealthy Americans in hiding billions of dollars in foreign accounts. Part of the fallout included the enactment of the Foreign Account Tax Compliance Act (FATCA) in 2010, which requires all foreign banks to file reports with the IRS on all American accounts over $50,000. Americans must also file the disclosure separately on their yearly returns. Failure to report results in a 40 percent penalty for the account holder and even stiffer penalties for the banks. While the IRS and DOJ have done a thorough job of going after the average (and innocent) U.S. taxpayer living abroad, their batting average of catching the banking administrators who actually colluded with the wealthy account holders to hide billions stands at zero.

Raoul Weil, former administrator of UBS AG’s global wealth management division, was recently cleared of tax conspiracy by a federal jury that deliberated barely one hour in Fort Lauderdale, Florida. The ruling is ironic because UBS actually admitted participating in the tax evasion scheme in 2009 and paid $780 million in fines to the IRS. Weil was indicted in 2008, along with nearly 30 other top banking officials, and personally charged with assisting 17,000 U.S. account holders to hide $20 billion in taxable assets. Interestingly, Weil did not testify and his counsel called no witnesses, choosing instead to allow the prosecution’s witnesses to appear as the guilty parties, choosing to point fingers in return for their own immunity.

This is the second such defeat for the IRS and DOJ in recent weeks. On October 31, a former senior vice president of Mizrahi Tefahot, an Israeli bank, was acquitted in Los Angeles of assisting account holders in a similar scheme. You can read more about these cases and the future prosecution strategy of the IRS and DOJ at Accounting Today and The Economist.