n 2007, the Internal Revenue Service’s efforts to clamp
down on offshore tax-avoidance schemes received a
boost (and holders of undisclosed offshore accounts
received a shock) when Bradley Birkenfeld, a UBS
banker, agreed to cooperate with the government.
The Birkenfeld disclosures breathed new life into the
government’s pursuit of offshore accounts, which reportedly
result in a “more than $40 billion-a-year drain on federal
In addition to pursuing criminal charges against offshore
account holders whose names have been disclosed, on March
23, 2009, the IRS sought to encourage account holders to
“come clean” by announcing a reduced penalty structure
for taxpayers who availed themselves of its longstanding
voluntary disclosure practice.
This special voluntary disclosure program ended on Oct.
15, but the government’s efforts in this arena are still in high
gear. Not only has the government extracted a commitment
from UBS to disclose the names of approximately 4,450 U.S.
taxpayers who held previously undisclosed accounts, but
the IRS has indicated that it will be pursuing other foreign
banks for information regarding their U.S. clients. These
efforts have been supported by the Obama administration,
which has stated that it intends to raise revenues by
“crack[ing] down on ‘illegal overseas tax evasion.’”2 And
Congress has gotten into the act, proposing legislation to
enhance the IRS’s ability to combat offshore tax abuses.
Given the government’s continuing pursuit of offshore
tax-avoidance schemes, it appears that taxpayers will
continue to seek advice from lawyers and accountants
regarding the implications of their previously undisclosed
The IRS Initiative
The background of the IRS’s recent focus on offshore
accounts is well documented.3 In 2007, Mr. Birkenfeld
agreed to cooperate with an investigation of tax evasion
by his U.S. clients.4 This led to the issuance of a “John
Doe summons” to UBS seeking information about U.S.
taxpayers who may be usin