IRS and UBS still at odds on list of possible tax cheats

— -- U.S. District Judge Alan Gold said the two sides must agree on a settlement or a request for more negotiating time by Friday. Otherwise, a crucial court hearing in the closely watched tax case will start next week.

The dispute focuses on whether UBS can be forced to turn over client account information that constitutes the heart of Switzerland's historic reputation for banking secrecy.

The Justice Department argues that the information must be disclosed because many of UBS' American clients have ducked federal taxes with the bank's help. UBS in February agreed to pay $780,000 in a settlement that deferred prosecution of charges that its bankers secretly traveled to the U.S. for client meetings that facilitated millions of dollars in tax evasion.

UBS, in a contention backed by the Swiss government, argues that disclosing the client data would be a criminal violation of their nation's bank secrecy laws.

During a telephone status conference on Wednesday, attorneys for both sides told Gold that talks had hit an unspecified "stumbling block." While UBS lawyers said the issues could be resolved relatively quickly, Justice Department attorneys disagreed, and said the case should not be further delayed.

Federal investigators have maintained pressure on UBS by pursuing criminal cases against some of the estimated 250 American clients whose account data were previously given to the IRS based on specific evidence of tax evasion. Three of those clients have pleaded guilty to filing false tax returns so far, the latest on Tuesday in Fort Lauderdale federal court.

Switzerland's foreign minister, Micheline Calmy-Rey, is expected to meet with Secretary of State Hillary Clinton on Friday in a session to include the UBS dispute.