Suspension of Statute of Limitations From the UBS John Doe Summons (1/26/14)

A reader has provided me an IRS document calculating the statute of limitations for U.S. taxpayers within the scope of the IRS's John Doe Summons (JDS) for UBS records.  The document invokes the authority of IRS 7609(e)(2), here, which provides:

(2) Suspension after 6 months of service of summons
In the absence of the resolution of the summoned party’s response to the summons, the running of any period of limitations under section 6501 or under section 6531 with respect to any person with respect to whose liability the summons is issued (other than a person taking action as provided in subsection (b)) shall be suspended for the period—
   (A) beginning on the date which is 6 months after the service of such summons, and
   (B) ending with the final resolution of such response.

Note that the statute of limitations is suspended for both civil and criminal purposes.  The cited statutes are Sections 6501, here, the civil statute and 6531, here, the criminal statute.

The document says that this suspension applies to each member of the John Doe class -- the class of persons described in the John Doe Summons (which the document does not define, but see below).  The document then states the calculation of the suspension as follows:

7/21/08 UBS John Doe Summons Served
1/21/09 Six Month Anniversary of the Service of the Summons
11/16/10 Notification to UBS Advising of the Withdrawal of the Summons (Final Period of Statute Suspension)_
664 Days Statute Suspension

Who is subject to this suspension?  The document says that it is any person in the class described in the John Doe Summons to UBS.   The following is from the John Doe Petition Documents:

The Petition for the JDS:

5. The "John Doe" summons relates to the investigation of an ascertainable group or class of persons, that is, United States taxpayers, who at any time during the years ended December 31, 2002 through December 31, 2007, had signature or other authority (including authority to withdraw funds; to make investment decisions; to receive account statements, trade confirmations, or other account information; or to receive advice or solicitations) with respect to any financial accounts maintained at, monitored by, or managed through any office in Switzerland of UBS AG or its subsidiaries or affiliates and for whom UBS AG or its subsidiaries or affiliates (1) did not have in its possession Forms W-9 executed by such United States taxpayers, and (2) had not filed timely and accurate Forms 1099 naming such United States taxpayers and reporting to United States taxing authorities all reportable payments made to such United States taxpayers. There is a reasonable basis for believing that such group or class of persons may fail, or may have failed, to comply with one or more provisions of the Internal Revenue laws. The information sought to be obtained from the examination of the records or testimony (and the identity of the persons with respect to whose tax liabilities the summonses have been issued) is not readily available from other sources. 

The Memorandum in Support of the Petition.

A. The Investigation Is Related to an Ascertainable Class  

As required by Section 7609(f)(1), the group or class of persons to be investigated here is ascertainable -- United States taxpayers, who at any time during the years ended December 31, 2002, through December 31, 2007, had signature or other authority (including authority to withdraw funds; to make investment decisions; to receive account statements, trade confirmations, or other account information; or to receive advice or solicitations) with respect to any financial accounts maintained at, monitored by, or managed through any office in Switzerland of UBS or its subsidiaries or affiliates, and for whom UBS or its subsidiaries or affiliates (1) did not have in its possession Forms W-9 executed by such United States taxpayers, and (2) had not filed timely and accurate Forms 1099 reporting to United States taxing authorities all reportable payments made to such United States taxpayers.  

This class is readily ascertainable by UBS. As explained in the Reeves Declaration, UBS divided its United States taxpayer clients with UBS accounts in Switzerland into two groups; (1) those who submitted Forms W-9 (which would identify the United States taxpayer as the beneficial owner of the account and provide UBS with the information necessary to file with the IRS Forms 1099 reporting all payments made thereto) ("declared accounts"); and (2) those who chose not to file Forms W-9 ("undeclared accounts"). Thus, it seems that UBS can readily identify which clients fall within the ambit of the "John Doe" class. 

The Affidavit in Support of the Petition

I. THE SUMMONS DESCRIBES AN ASCERTAINABLE CLASS OF PERSONS 

7. The proposed "John Doe" summons seeks information regarding United States taxpayers who, at any time between December 31, 2002 and December 31, 2007, had financial accounts with UBS in Switzerland, and for whom UBS (1) did not have in its possession IRS Forms W-9, and (2) had not submitted timely and accurate IRS Forms 1099 to United States taxing authorities reporting all reportable payments made to the United States taxpayers.  

8. This class of persons is easily ascertainable by UBS. As explained below, UBS divides their United States taxpayer clients into those who provide an IRS Form W-9 and those who do not. The very nature of private banking suggests that UBS will be conversant with virtually all of a client's significant financial affairs, including the formation of controlled foreign entities and the opening of foreign accounts. Private banking requires that the primary client advisor be familiar with all of the financial affairs of the client in order to advise the client on a comprehensive financial plan. For these reasons, UBS will be able to readily ascertain the identity of the proposed "John Doe" class. 

* * * * 

28. During our interview, Birkenfeld provided to me a letter from UBS addressed to all of its United States taxpayer clients with offshore accounts dated November 4, 2002. UBS sent the letter following its entry into a Qualified Intermediary Agreement ("Q.I. Agreement") with the Internal Revenue Service in order to assuage concerns of United States taxpayers that the Q.I. Agreement would result in the disclosure of their identities to U.S. authorities. The Declaration of Barry Short contains a full explanation of the Q.I. Agreement. In this letter UBS advised that United States taxpayers who did not want to provide Forms W-9 would continue to enjoy anonymity, and their identities would not be shared with U.S. authorities. This letter, which is attached as Exhibit E, states in part:  

The QI regime fully respects client confidentiality as customer information are only disclosed to U.S. tax authorities based on the provision of a W-9 form. Should a customer choose not to execute such a form, the client is barred from investments in U.S. securities but under no circumstances will his/her identity be revealed. Consequently, UBS's entire compliance with its QI obligation does not create the risk that his/her identity be shared with U.S. authorities. 

29. Because it assisted certain United States taxpayers conceal their ownership of the accounts, UBS divided its United States taxpayer clients into two groups: (1) those who were willing to submit Forms W-9 and have the bank file Forms 1099 reporting their earned income, and (2) those who wished to remained "undeclared." 

Thus, the JDS -- and hence the suspension -- covers virtually all U.S. taxpayers who UBS classified as those not willing to disclose their accounts.

How many was that?  The number appears to be around 52,000, based upon various documents regarding the petition to authorize the JDS and subsequent petition to enforce the summons, as well as statements by the DOJ, by UBS and even the Swiss tax authorities.

Subsequently, the DOJ and UBS with the intervention of the Swiss did settle back to a number of documents that would be provided under the treaty of something like 4,500.  So there might be an interpretive question of when exactly the suspension period ends for those among the 4,500, those within the 52,000 but not within the 4,500, or the entire group of 4,500.  I will let those who have a dog in that hunt hash that out.  I do know, however, that the IRS is pursuing this issue in appropriate cases.  Of course, for U.S. taxpayers joining one of the iterations of OVDI/P and not opting out the penalty structure, it is irrelevant.  But for those taxpayers who did not join OVDI/P or who opted out, the statute of limitations might be important.