By Ryan J. Donmoyer

June 18 (Bloomberg) — U.S. citizens and residents with
UBS AG accounts are racing the clock to disclose their secret
holdings to the Internal Revenue Service after the Swiss
Parliament ratified an agreement to surrender the names of
4,450 bank clients, tax lawyers said.

Swiss lawmakers yesterday ended a standoff and approved
the bank’s settlement with the U.S., allowing the names to be
transmitted to tax authorities as early as this week. Lawyers
said Americans who ignored an IRS offer last year to reduce
penalties in exchange for voluntary disclosures are now
flooding their offices with calls seeking advice on how to
avoid possible sanctions, which could include prison sentences.

“For UBS account holders, they have mere hours to run to
the IRS and hope they can disclose the account before the Swiss
hand the data over,” said Asher Rubinstein, a partner at
Rubinstein & Rubinstein LLP in New York who said he’s been
“getting panicked calls all week.”

The Parliament’s vote ends Switzerland’s long tradition of
bank secrecy and is a victory for the IRS and U.S. Department
of Justice, which fought a two-year battle to gain access to
the accounts. It also removes the threat of further civil
litigation against Zurich-based UBS and additional fallout
under criminal law.

‘Move Quickly’

IRS Commissioner Douglas Shulman said yesterday he expects
the Swiss government to “move quickly” to transmit the
information.

“We will immediately follow up on the information we
receive from the Swiss and we will vigorously enforce the laws
against those who have attempted to evade their tax
responsibilities by hiding their assets offshore,” he said.

IRS spokesman Dean Patterson said “even though the
special provisions of the voluntary disclosure program are no
longer available, it’s always a good idea for taxpayers to come
forward on their own and disclose tax issues before we find
them.”

A UBS spokeswoman in New York, Karina Byrne, said the bank
previously told the 4,450 clients their account data would be
given to the Swiss Federal Tax Administration, which would then
determine if it should be disclosed to the IRS.

The SFTA said yesterday in a statement that it had already
reviewed 3,000 accounts to determine if they met the criteria
for transfer to the U.S. under the accord. It said it had
already disclosed the names of 500 consenting account-holders.

IRS Offer

About 15,000 Americans voluntarily reported secret
offshore bank accounts to the IRS last year, after the tax
agency offered to reduce certain penalties and not seek
criminal charges. The program ran from March to October.

Robert Fink, a tax lawyer with Kostelanetz & Fink LLP in
New York, said many of the 4,450 UBS account holders may
already have come forward after being warned of possible
disclosure by the bank and the Swiss government.

“The number of new names that the IRS will get will be
far, far less than 4,450,” he said.

Americans who didn’t take the IRS’s leniency offer last
year now face possible criminal charges, prison time and the
loss of all the money in their Swiss accounts, plus
“substantially more,” said Barbara Kaplan, a tax lawyer at
the New York firm Greenberg Traurig LLP. Those who come forward
before the IRS learns their identity by other means may still
avoid prison, she said.

‘Worst-Case Scenario’

“I think people are starting to realize that their
opportunity to avoid disclosure has run out,” she said. “The
worst-case scenario, including criminal prosecution, could
ensue. It’s worth taking the chance on the civil side to
mitigate the chance on the criminal side.”

UBS, Switzerland’s biggest bank, avoided U.S. prosecution
in February 2009 by paying $780 million, admitting it helped
wealthy Americans evade U.S. taxes from 2000 to 2007, and
handing over account data on more than 250 U.S. clients. The
day after the settlement, the U.S. sued the bank, seeking data
on 52,000 Swiss accounts.

UBS settled that case in August, agreeing to hand over as
many as 4,450 names to the Swiss government to review before
passing them on to the IRS.

Parliamentary approval became necessary after a Swiss
court ruled in January that the agreement couldn’t be enforced
as it then stood. Swiss lawmakers ratified the deal yesterday
after the lower house agreed to drop demands for a public
referendum that would have caused a deadline for disclosure of
the information to be missed.

Undeclared Assets

Under terms of the settlement between the two countries
last year, Switzerland will turn over details of UBS accounts
of U.S. residents that held more than 1 million Swiss francs in
undeclared assets at any time between 2001 and 2008. Other
benchmarks include U.S. citizens who were beneficiaries of
“offshore company accounts.”

In both cases, there has to be a suspicion of “tax fraud
and the like,” according to a statement distributed last year
by the Swiss Justice Ministry in Bern.

The steepest penalty allows the IRS to seize the higher of
$100,000 or 50 percent of an offshore account’s value when the
holder deliberately didn’t disclose it to the Treasury
Department. That penalty can apply to multiple years.

Scott Michel, a lawyer at Caplin & Drysdale in Washington,
said he had received two calls yesterday from clients
considering a voluntary disclosure after the Parliament’s vote.

Leniency for Volunteers

Michel said he and other tax lawyers hope the IRS will
continue to show leniency to people who come forward, even
without explicit offers to reduce penalties such as those last
year.

“If they start hammering people with 100 percent or more
penalties, people are going to stop making voluntary
disclosures,” Michel said.

At least 16 UBS clients have been charged with tax crimes
in the case. Two UBS bankers and three other alleged enablers
of tax crimes also have been charged. At least 150 other
Americans are under criminal investigation, the Justice
Department said last year.

To contact the reporter on this story:
Ryan J. Donmoyer in Washington at
rdonmoyer@bloomberg.net