NYT
Prosecutors suspect that from late 2002 to 2007, UBS helped American clients illegally hide $20 billion, letting them evade $300 million a year in taxes.
What's wrong with this picture? This 5 year period shows 1.5 Billion missing from federal coffers that should have been paid in taxes... but wait... 1.5 billion is only 7.5% of 20 Billion. I thought that as you made more money your tax rate went up... I paid almost 20% last year after deductions, and I didn't make that much.
Why is the IRS seeking less than half of what is owed? Even at the 15% tax rate it should get double this number! More likely it is 1 Billion a year at 22% or so. This regressive tax crap needs to stop in this country. The rich need to start paying their fair share for the services and stability this country provides which lets them prosper. Freedom isn't free. Hiding money from the government is raises the obligations of one's fellow citizens; it is theft, plain and simple; not theft from the government, but theft from you and me.
**Update 1**
A little more background on why the amount sought by the IRS is low:
here
"The law requires a United States taxpayer to report all financial accounts in a foreign country if the total value of the accounts exceeds $10,000 at any time during the calendar year. A willful failure to report a foreign account can result in a penalty of up to 50 percent of the amount in the account at the time of the violation."
Combine that with the times article:
"UBS urged some American clients to destroy records and to stash watches, jewelry and artwork that they had bought with money hidden offshore in safe deposit boxes in Switzerland. The bank also encouraged them to use Swiss credit cards so the I.R.S. could not track purchases."
Again reinforces the criminal penalties that the government could be seeking, but appears to not be describing.
**Update 2:**
Just a quick game theoretic explanation of why it is more likely that assets in the hidden accounts are composed primarily of untaxed income and capital gains on that untaxed income:
- Tax penalties if caught are directly proportional to the amount of money concealed from the IRS.
- Hiding 'too much' money from the IRS at any given time, either by channeling too much at once or attempting to launder too great a proportion of assets at a time is more likely to get spotted by an auditor.
- Criminal and punitive penalties are proportional to the amount of money concealed from the IRS.
All of these are reasons to limit the amount of money in the Swiss accounts, rather than dumping all assets into those accounts.
- There is no tax liability on capital losses, or capital gains that are balanced by capital losses.
- The costs associated with brokerages are relatively constant across brokers.
It should be pretty obvious that there is only a real incentive (payoff) to conceal money the IRS wants to tax, rather than either post-tax income or working capital.
Finally, there is no particular incentive to use a foreign and concealed broker for legitimate trading, the incentive kicks in when talking about untaxed profit, as there is no direct reward for concealing tax-neutral working capital.
Especially when one has a broker colluding in the fraud (As UBS has admitted to doing), one can channel or skim capital gains using any number of tools. A simple one is an option manipulation:
Sell a European option to an abettor for a given period that will obviously be 'in the money' when the time comes. When the time comes to exercise that option, some of the difference between the 'in the money' price and the fair market price is transferred to the hidden account. The Bank takes the assets and a 'finder's fee'. Capital gains have now been concealed by a 'risky option that lost money', and the IRS is reported a capital loss, or a very small capital gain.
Even something as simple as a company reporting payments to a shell corporation far in excess of the value of any services received, the extra being slushed into a hidden account.