Get in Line Brother #14 - First UBS Customer Charged Pleads Guilty

The newspapers and tax rags reports this morning that Michael Rubinstein, the first of the UBS customers to be indicted has pled guilty. For the DOJ press release, click here. For articles on the plea, see the New York Times article here and the Wall Street Journal article here. For my previous blog on the indictment, click here.

The key points are:

1. Rubinstein pled guilty to one count of filing a false tax return for the year 2004. I presume that this is a tax perjury count under § 7206(1), which carries a maximum 3 year sentence.

2. Rubinstein agreed to pay a single FBAR penalty equaling 50% of the highest year during the period 2001-2007, thereby resolving his liability for all FBAR delinquencies. This single-year penalty is just 30% higher than the penalty being offered under the voluntary disclosure initiative. My gut reaction is that persons considering the costs and benefits of entering the volulntary disclosure initiative may conclude that this is not that great an additional civil cost of hunkering down and hoping for the best rather than joining the voluntary disclosure initiative. Of course, the real unknown is the cost and risk of criminal prosecution from a decision to hunker down.

3. I have not seen any tally of what Rubinstein will have to pay the IRS. DOJ Tax has been requiring plea agreements to include contractual restitution in the amount of the criminal income tax loss and some penalty amount. The reports I have read are silent on that.

4. The plea (and the inducements to the defendant) seems to be timed to remind the taxpayer and practitioner communities that FBAR time is now and more will follow (thus offering the incentive to join the voluntary disclosure initiative). The DOJ press release thus says:

As the FBAR filing deadline of June 30 rapidly approaches, taxpayers should be aware of the serious consequences of failing to report offshore income and foreign bank accounts," said Acting Assistant Attorney General John A. DiCicco. "Taxpayers who hide income offshore and fail to comply with the FBAR filing deadline face criminal prosecution, jail time, and steep fines."

"Today’s guilty plea resolves the first prosecution of a UBS client based upon records received from UBS pursuant to the historic deferred prosecution agreement executed earlier this year. In accordance with this agreement, UBS has disclosed the identities of wealthy Americans who were illegally hiding money to evade U.S. taxes," said Acting U.S. Attorney Jeffrey H. Sloman. "More prosecutions are expected to follow, as we continue to hold accountable those who conceal money and assets in an effort to avoid their income tax obligations."