Wednesday, March 11, 2009

Three Shocking Scenarios

Submitted by ASO member: Kimberly Wilcox

I recently became more aware of three shocking tax scenarios. The first starts as Union Bank of Switzerland, A.G., more commonly know as UBS, is being lightly raked over the coals by the U.S. Justice Department. As part of a deal last month UBS was supposed to be forthcoming with the names and numbers of accounts of Americans who have evaded Uncle Sam's tax tables by keeping their wealth in Swiss Bank Accounts in exchange for not having UBS officers subjected to criminal prosecution. This has resulted in UBS executives "confessing" last July 2008 to the Senate Homeland Security and Governmental Affairs Committee that there were 19,000 American accounts at its bank that were evading American income taxes. This past week, Mark Branson, a UBS executive, now confirms that there are "around" 47,000 accounts in their Swiss bank of Americans not paying taxes on income. Last month UBS formally accepted responsibility for helping Americans hide assets from the U.S. government and agreed to pay $780 million in restitution & fines based on the prior disclosure. The bank also turned over the names of ONLY 300 or so American clients of the 19,000 it declared then. The rest of the 46,700 names have yet to be turned over to the IRS or the the Senate Homeland Security & Government Affairs Committee. So, the question is, will these tax evaders eventually have to pay their income taxes like every other American? Should the company face penalties and fines in this country for fronting this operation on an even greater scale than they originally said? Only problem with this is that UBS isn't even the tip of the iceberg in terms of tax evasion and the Swiss may not even be the best at it. American banks and brokerages hold billions of dollars of foreign money for citizens of Latin America, Arab countries, Israel and other nations, not only assisting in tax evasion on the income, but avoiding the asset tax that many countries have on the principal, among other financial scams. Yes, US banks earn hefty fees on these transactions every year. In addition, Luxembourg, the Canary Islands and the Caribbean Islands are well known tax havens. Is anyone going to evenly prosecute all these offenders?

The second scenario is the upper 1% of Americans who don't seem to have to conform to the tax code until they get nominated to serve in high public office, such as Secretary of the Treasury, Timothy Geithner, who recently ponied up $34,000, Former Senator Tom Daschle, who ultimately declined the nomination to the office of Health & Human Services Secretary because of back taxes owed in the amount of $128,203 and finally Ron Kirk, the former mayor of Dallas who, if confirmed will be the White House chief trade representative, owes over $10,000 in back taxes. Should the well-heeled only have to pay taxes when they're caught not paying them after being nominated for offices of the Federal Government by President Obama? Hardly seems fair to the average tax payer.

Which brings me to the third scenario. Many Americans have family, neighbors, and friends currently without jobs due to the financial shams in our country. Many were unaware that their unemployment checks that they received in 2008 are indeed subject to Federal and in some cases State tax. And, there is no automatic withholding or notification with your check that you might want to institute withholding so that you don't have a big tax bill in 2009 to pay on that money that you already spent.

So, we have the REALLY well-heeled protected by the Swiss and other foreign tax havens' secrecy, the SORT OF well-heeled with their assets in America only getting caught, and the Average Joe who got laid off last year completely exposed with regard to his income and tax obligations. Where's the IRS in this picture? Why isn't the audit process hitting the big timers who with one audit will make up for 1,000's of little guys? Well, right now, the IRS has asked the Justice Department to have UBS respond to its John Doe summons for the names of the rest of their clients. We'll see how this saga plays out.


Anonymous said...

As you point out, UBS is just the tip of the iceburg! It seems there will always be those who think they are above paying taxes!

Anonymous said...

This leaves me with two thoughts: (1) enforcement is the key to "fairness" in the system and (2) the complexity of the tax code make enforcement of against anyone but the simplest tax situations (the Average Joes) practically impossible.

So what's the answer? A flat tax or something closer to it? Could Congress ever be free of the addiction to tax breaks as a means for setting policy? Can this issue be messaged in a way that helps a majority of American truly rally behind it? Or have too many people given up because of their belief in the certainty of "death and taxes"?

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