Swiss banking giant UBS AG agreed Wednesday to turn over to the IRS the details of 4,450 accounts suspected of holding undeclared assets by American customers, piercing Switzerland's long-standing tradition of banking secrecy.
IRS Commissioner Doug Shulman said the accounts held $18 billion in assets at one time. Many have since been closed, he said.
The deal will give the Internal Revenue Service thousands of long-sought account names, Shulman said, and is expected to provide even more UBS clients who voluntarily disclose their financial details to the agency.
UBS has an estimated 52,000 accounts of U.S. customers. The IRS chief said the 4,450 accounts being relinquished to the agency were the ones most suspected of containing undeclared assets.
"I believe this agreement gives us what we wanted - access to information about those UBS accountholders most likely to have been involved in offshore tax evasion," Shulman said.
He said that other account holders appear to be in compliance with U.S. tax laws.
The two sides told a federal judge last week they had reached a tentative agreement, but the details were not released until Wednesday.
Account holders will be notified before their names are released to the IRS. They will then have the ability to repeal their release before Switzerland's Federal Administrative Court.
The process is expected to take several months, IRS officials said.
Shulman said the Swiss government has assured U.S. authorities that the release of the names conforms with both Swiss banking laws and the tax treaty signed by both countries. Shulman said the IRS reserves the right to resume its legal fight if any of the names are withheld.
"This issue is not going away, and people hiding assets and income offshore will find themselves increasingly at risk due to our efforts in this area," Shulman said.
UBS shares were down 2.1 percent at 16.55 Swiss francs ($15.51) on the Zurich exchange.
The Swiss Bankers Association issued a statement in support of the agreement.
"The out-of-court agreement avoids a prolonged legal battle that would have had an uncertain outcome and UBS can now continue with its consolidation process in an atmosphere free of this legal uncertainty," the association said.
Swiss Justice Minister Eveline Widmer-Schlumpf told a news conference in the capital of Bern that the deal lifts the threat of criminal prosecution against UBS, which could have endangered the bank's very existence and dealt a severe blow to the Alpine nation's economy.
"There was no alternative to this solution," she said.
Asked if other Swiss banks could be targeted for future prosecution in the United States, she said: "We don't expect this to be the case."
UBS Chairman Kaspar Villiger said, "I am confident that the agreement will allow the bank to continue moving forward to rebuild its reputation through solid performance and client service."
The case - and other U.S. efforts to go after international tax dodgers - already has a lot of wealthy Americans with offshore accounts nervously running to their tax advisers - and the Internal Revenue Service.
Tax advisers at several U.S. firms said they are seeing many more customers with undeclared assets seeking information about their legal options.
The IRS long has had a policy that certain tax evaders who come forward before they are contacted by the agency usually can avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution.
In March, the IRS began a six-month amnesty program that sweetened the offer with reduced penalties for people with undeclared assets. Shulman said the response has been unprecedented, though he declined to say how many people have applied.
Shulman said UBS customers are free to take advantage of the program as long as they come forward before Sept. 23 - and before the IRS receives their name from UBS.
"The letter they receive from the bank will not disqualify them from coming forward to the IRS under our voluntary disclosure program," Shulman said. "But once the Swiss government sends us the name, all bets are off."
Shulman said the IRS already is using the program to get information from account holders about other banks and financial advisers who have helped them evade U.S. taxes.
"You can expect us to continue to be aggressive," he said.