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UBS Not Liable to Tax Cheats, Appeals Court Decides

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The Seventh Circuit Court of Appeals has affirmed the dismissal of a class action that sought damages by class members as a result of the 2008 UBS tax evasion scandal.

The plaintiffs failed to disclose their UBS accounts on their Forms 1040, nor did they disclose the income they earned in those accounts. After paying the taxes they owed plus interest, under the IRS amnesty program, they sought to recover from UBS the penalties, interest and other costs they incurred.

After characterizing them as “tax cheats,” U.S. Circuit Judge Richard Posner said it was very odd for them to seek to recover their penalties, let alone interest, from the source of the income concealed from the IRS.

While there are grounds for avoiding penalties for admitted violations of federal tax law, such as reliance on plausible advice from a reputable-seeming lawyer or accountant, the plaintiffs did not invoke any of those grounds, he noted. There is in general no common law duty to prevent another person from violating the law, the court said. “We are surprised that UBS hasn’t asked for the imposition of sanctions on the plaintiffs and class counsel,” the ruling stated.

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