The powerful US Internal Revenue Service will soon close loopholes in its agreements with foreign banks that Swiss bank UBS and its clients allegedly exploited to shield $20 billion in assets from US taxes, an agency official said, according to Bloomberg.

Barry Shott, the IRS's deputy commissioner of international affairs, said the crackdown will make it harder for US citizens to conceal assets in offshore shell companies. Also, he said, the agency for the first time will require accounting firms to report any suspicious activity that may constitute fraud as strictly defined by the

US.

The IRS is putting the finishing touches on the new rules two days before the Senate Permanent Subcommittee on Investigations releases a report on secret accounts at
Zurich-based UBS and

Liechtenstein's LGT Group.

The new rules, at least two years in the making, are aimed at tightening enforcement of Qualified Intermediary contracts. The QI programme was adopted in 2000 to help the IRS keep track of

US customers' money in foreign banks.

Meanwhile, the tax strategies of four wealthy people are expected to be a focus of a Senate subcommittee hearing later this week, as legislators join the burgeoning probe of alleged tax-evasion services marketed by UBS and other banks.

Separately, UBS said it may buy back some or all of its $3.5 billion in auction preferred stock, which was once touted as the next best thing to cash until the value plummeted under the weight of the credit crisis, according to media reports.

UBS said it is developing a structure to offer to repurchase the auction preferred stock, which was issued by registered closed-end tax-exempt funds and held by UBS advisory and brokerage clients in their UBS accounts.

Auction preferred stock is a preferred equity security that pays dividends that are reset by an auction typically held every seven or 28 days. The securities appealed to

US state and local government issuers because it allowed them to raise long-term debt cheaper, and it provided leverage to closed-end funds to help boost their returns.

High net worth individuals and corporations liked these securities because they offered slightly higher returns than those on other cash-like assets.

But auctions have been failing since February 2008, leaving many holders unable to sell them. By April the $340 billion

US auction rate market was headed to the graveyard, another casualty of the global credit crisis.