IRS Pulls Bait and Switch on Tax Evaders

According to the Taxpayer Advocate Service, an Internal Revenue Service watchdog, the agency used deceitful tactics to get American tax payers to come forward and reveal their secret offshore bank accounts. In a kind of “bait and switch” scheme, the watchdog said, the IRS promised reduced penalties in exchange for voluntary disclosure of hidden accounts but went back on its promises, assessing higher fines than the taxpayers had been led to believe they would owe.

“The IRS’s offshore voluntary disclosure program bait and switch may undermine trust for the IRS and future compliance programs,” wrote Nina Olson, the national taxpayer advocate who runs the watchdog. The IRS, meanwhile, disputed the characterization of its tactics as “bait and switch.” On Monday, meanwhile, the IRS reopened the voluntary disclosure program, which brought in nearly $4.5 billion in unpaid taxes between 2009 and last year from a total of about 33,000 taxpayers.

Tax law experts see the renewal of the disclosure program as a sign that US authorities are about to get lists of names from Swiss banks whose American clients are hiding money from the IRS’s watchful eye. In 2009, one of Switzerland’s largest banks, UBS, handed over 255 names of American citizens with undisclosed accounts with the bank as part of a $780 million settlement, and wold later hand over another 4,450 names. The move was considered a breach of standard operating procedure for the Swiss banking industry, which does not consider tax evasion a crime and is required by law to protect the confidentiality of its clients.

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