7,500 Americans Admit Secret Bank Accounts as Deadline Nears

Faced with a Thursday midnight deadline to avoid possible prosecution, more than 7,500 Americans have come clean about secret foreign bank accounts, a senior IRS official said in an interview for broadcast tonight on "ABC World News with Charles Gibson."

"We've been seeing a continuing surge of voluntary disclosure," said IRS Deputy Commissioner Barry Shott, who oversees international tax compliance.

The surprising response comes weeks after the once-secretive Swiss Bank, UBS, notified thousands of Americans that it would provide their names and account data to U.S. authorities under a new agreement between the U.S. and Switzerland.

VIDEO: Thousands admit tax cheatsPlay

American authorities say UBS abandoned its secrecy policy after it faced possible prosecution itself for running a highly profitable business that allegedly helped U.S. citizens evade taxes by hiding their money in secret accounts through the bank.

At least one UBS official has been convicted on tax charges and two others are awaiting trial.

"We have clients on that list and they are quite angry," said Scott Michel, a Washington, D.C, lawyer who represents more than 300 former UBS account holders.

"They were brought into this by UBS and sold a bill of goods by UBS," said Michel. "In their view, they were betrayed by the bank in terms of having their information turned over."

IRS officials say the response includes many customers of banks and countries far beyond UBS and Switzerland.

"Right now we are seeing disclosures about 240 banks in 70 countries on every continent except Antarctica," said Shott.

While not officially called an amnesty program, the IRS says those voluntarily disclosing their secret foreign accounts will likely avoid criminal prosecution.

"They'll pay all the tax and interest and they will pay a penalty," said Shott. "And usually the decision is that there will not be a criminal prosecution."

The penalty will include the forfeiture of one-fifth of the amount held in the foreign accounts.

"Some of our cases range as high as something over $100 million," said Michel.

Sen. Carl Levin, D-Mich., said the voluntary disclosures were "progress," but said Congress still needs to enact legislation to "crack down on offshore tax abuse and collect the estimated $100 billion in unpaid taxes being lost each year."

It's "clear that thousands of other taxpayers are still in the shadows, working to keep their offshore accounts hidden," Levin, chairman of the U.S. Senate Permanent Subcommittee on Investigations, said in a statement.

American UBS Customers

UBS sent letters to thousands of its American customers two weeks ago informing them that "your account with UBS appears to be within the scope of the IRS Treaty Request."

Tax lawyers said the letter set off a wave of panic.

"Panic, crying, hysteria," said Florida tax lawyer Martin Press, who represents several dozen former UBS customers.

"The Swiss tax haven as we've known it, is dead," said Press.

UBS has already provided several hundred names to American authorities and for them it is too late to be part of the IRS voluntarily compliance program.

Steven Rubenstein, a multi-millionaire accountant in Boca Raton, FL, will be sentenced later this month after pleading guilty to tax evasion charges.

His prosecution was the first of a UBS client based on documents provided by the bank.

Rubenstein, who helps clients build, buy and sell yachts, admitted he maintained an account at UBS in the name of a British Virgin Island corporation and never reported it on his yearly IRS tax return.

He faces up to three years in prison and prosecutors and the IRS hope the case serves as a stark reminder to others of what can happen.

IRS officials and tax lawyers say those coming forward to reveal their secret accounts include outright tax cheats as well as Holocaust victims who hid their money after World War II, doctors who hid their money from malpractice judgments and businessmen who hid their assets from divorce proceedings.

Retired Wall Street broker Bruce Krasting, of Westchester County, NY, says he contacted the IRS in Dec. 2008 after UBS told him they were closing his account.

Krasting told ABCNews.com that he is a Swiss citizen and opened the UBS account "to obtain Swiss health insurance." He admits he failed to report the account on his IRS form. "That is a sin, and we pay for our sins."

In Seattle, lawyer Tom Wolfe went to the IRS after learning his elderly father, a doctor, had had a secret account at UBS for years.

The IRS imposed penalties and took close to a fifth of the money in the account.

"For me, the relief we got, I thought, we were getting off cheap, Wolfe told ABCNews.com.

Tax Cheats

With a seven year limit on the ability of the IRS to recoup lost taxes, tax lawyers say some of the bigger tax cheats may come out ahead under the voluntarily compliance program.

"People who had off-shore money for some time and never reported the income initially, will come out somewhat better than if they would have, if they'd paid taxes all along," said Jack Blum, a consultant to the IRS on foreign tax shelters.

"I suspect that's rather a small minority of cases, but that's a fact," he said.

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