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The hopes of American holders of secret offshore bank accounts in UBS AG – Switzerland’s largest bank – ended suddenly last week after a standoff between the Swiss Parliament and the United States was replaced on June 17 by an agreement that reversed the former’s previously held position.

The European government has now agreed to quickly surrender the names of 4,450 American clients who ignored an IRS offer in 2009 for reduced penalties in exchange for release of their account information.

That offer is now decidedly off the table, having expired in October last year. Although approximately 15,000 Americans did respond to the IRS promise not to seek criminal charges by voluntarily disclosing information, that was a small minority. Those who did not accept the offer now risk severe penalties, which could include loss of all the money in their Swiss accounts and a prison sentence as well.

Comments from IRS Commissioner Douglas Shulman strongly emphasize the point that the IRS is not about to coddle those who had their chance at leniency and disregarded it. “We will immediately follow up on the information we receive from the Swiss,” Shulman said, “and we will vigorously enforce the laws against those who have attempted to evade their tax responsibilities by hiding their assets offshore.”

IRS spokesman Dean Patterson added that, although the leniency program has lapsed, “it’s always a good idea for taxpayers to come forward on their own and disclose tax issues before we find them.”

Penalties can indeed be severe. An offshore account holder who did not disclose assets to the Treasury Department can be forced to pay the higher of $100,000 or 50 percent of the account’s value, for as many years as disclosure was not made.

Related Resource: “Americans May Have ‘Mere Hours’ to Disclose UBS Accounts to IRS” June 17, 2010