As a FAQ webpage demonstrates, qualified intermediary withholding agreements, (“qi agreements”), with the IRS can obilgate foreign financial institutions to withhold tax monies and report about a U.S. taxpayer’s offshore financial account.  The qi agreement between the IRS and UBS AG played a critical role in the UBS John Doe summons case.  A February 6, 2009 declaration filed in the case, revealed UBS failed to supply information about U.S. taxpayers with secret Swiss bank accounts, despite UBS’ qi agreement with the IRS.

The declaration asserted that the IRS sought the Swiss bank account information through alternative means, by serving its John Doe summons upon UBS.  UBS’ qi agreement has also been a substantial element in at least four other U.S. lawsuits:  Olenicoff, et al. v. UBS AG, et al.No. SACV08-01029 AG (RNBx) (C.D. Cal.), Thomas, et al. v. UBS AGNo. 1:11-cv-4798 (N.D. II), LeBars,  et al. v. UBS AG, No. 2:12-cv-00424-MPK (W.D. Pa.), and Roberts et al. v. UBS AG et. al, No. 1:12-cv-00724-LJO-SKO (E.D. Cal.).

These lawsuits asserted claims against UBS sounding in fraud, disgorgement, breach of fiduciary duty, malpractice and breach of contract; and were filed by U.S. taxpayers seemingly penalized for not disclosing their UBS Swiss financial accounts to the IRS.  Among other things, the taxpayers argued they sustained the IRS penalties because UBS supposedly failed under its qi agreement to advise about the tax reporting requirements.

Only the LeBars and Roberts cases are however, still pending.  On April 10, 2012, the Court dismissed the Olenicoff lawsuit against UBS, partly because the qi agreement between UBS and the IRS “had no bearing on UBS’ duties to Olenicoff”.  The Thomas lawsuit was too dismissed by the Court which explained at its June 21, 12 Opinion & Order, that UBS owed no duty to the taxpayers, under the qi agreement.

Copyright 2012 Fred L. Abrams