A $200,000 UBS Account Grew Into A $21 Million IRS Penalty

September 5, 2012

Another former holder of a secret UBS AG account got off with probation Tuesday, when federal sentencing guidelines suggested a sentence of six months to a year. But it’s hard to argue that 84-year-old Jules Robbins, a World War II vet who settled in Long Island and built a nice business (Webster Watch) importing and selling watches to the likes of Kmart and Family Dollar Stores, got off cheaply.

Here’s his intriguing tale, as pieced together from documents on file at the U.S. District Court for Southern New York. (Robbins’ lawyers declined further comment.) In 1967, Robbins made a $200,000 deposit into an account with UBS in Vaduz, Liechtenstein, in the name of a Swiss foundation. In 2000, he transferred the account’s balance into a different UBS account in the name of a sham Hong Kong corporation, Waldenburg Finance Ltd.

By the end of 2007, the $200,000, largely invested in U.S. stocks, had grown to $41.7 million, a 14% annual average compounded return and three points better than the S&P 500. In addition to apparently smart stock picking, the account benefitted from decades of tax evasion; during that period, Robbins never reported the account, or any of its capital gains or other earnings to the Internal Revenue Service.

Then came 2008, not a good year for Robbins. The market crashed, and the securities in his Swiss account “lost approximately half of their value” according to a pre-sentencing memo filed by his attorneys. Plus, the federal government was closing in on the names of U.S. customers with unreported accounts at UBS. Robbins hired lawyers, filed back FBARs, sent $1 million to the IRS and began putting together accurate amended returns for 2002 through 2007.

As part of his 2010 plea deal, Robbins agreed to pay a hefty FBAR penalty—$20.8 million, or 50% of that bull market 2007 balance of $41.6 million. That was more than was left in the account and Robbins was forced to tap assets outside his UBS account to pay the penalty. In their sentencing memo, Robbins’ lawyers said the penalty wiped out 78% of his net worth. By contrast, California real estate developer Igor Olenicoff paid just $52 million in back taxes, fines and civil fraud penalties for hiding more than $200 million off shore.

“Unlike a defendant with an undisclosed cash account, Mr. Robbins is paying a penalty on the basis of unrealized gains that have long since evaporated,’’ his attorneys noted in their sentencing memo.

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Source:

Forbes

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A $200,000 UBS Account Grew Into A $21 Million IRS Penalty