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First taxpayer charged in UBS scandal

Less than two weeks after the official amnesty program ended for taxpayers who had previously failed to disclose income from offshore accounts, the first high profile criminal case involving a taxpayer has been resolved.

Steven Michael Rubinstein, of Boca Raton, an accountant and US client of UBS AG, the Swiss Bank that caused an international uproar when it was implicated in a wide-ranging scheme to assist foreign account holders in hiding income, was successfully prosecuted in the U.S. government's offshore tax-evasion probe. Rubinstein received three years of probation and a year of home-confinement, and was fined $40,000, on charges of filing a false tax return. The sentence was much lighter than expected.

The IRS charged that Rubinstein deposited more than $2 million in gold coins into his UBS accounts and used the funds to buy and sell securities. Rubinstein did not disclose the account on his tax return, as required by U.S. law, nor did he report the income generated by the accounts. You can read the official complaint here (downloads as a pdf). Rubinstein was arrested in April of this year, and has the unhappy distinction of being the first taxpayer associated with the case to be officially charged.

More criminal cases are expected over the next several months. The IRS had been working with UBS to turn over the names of US taxpayers who concealed their accounts from the government in an effort to avoid paying US income tax. UBS has admitted responsibility in the case, agreeing that it helped taxpayers conceal over $20 billion in offshore accounts from the US government. As a result, the bank agreed to pay $780 million under a settlement agreement. Additionally, several UBS executives, including Raoul Weil and Bradley Birkenfeld, have also faced charges associated with assisting in the tax evasion scheme.

Rubinstein was one of 285 names initially turned over to the feds by UBS as part of its settlement agreement in early 2009. An additional agreement was reached in summer to turn over thousands more names. The IRS announced that the names would be released and urged taxpayers to take advantage of the amnesty program in order to avoid criminal prosecution. The IRS reported that under the amnesty program, preliminary numbers show that nearly 7,500 taxpayers have come forward to make voluntarily disclosures.

Those who did not come forward in the scheme will be criminally prosecuted. The IRS had implied that they would "vigorously" pursue taxpayers who had not disclosed offshore accounts and previously unreported income. It felt as if the IRS was coming out with all guns blazing... but the Rubinstein sentence feels more like they have a pop gun. Were the threats all a bluff? Taxpayers and tax professionals will be watching eagerly to see what happens next.

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