Tags: tax | havens | irs | hearing

Obama, Congress Move to End Overseas Tax Havens

Wednesday, 04 Mar 2009 07:09 PM

By Dave Eberhart

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Internal Revenue Service Commissioner Douglas Shulman is warning cheating U.S. taxpayers hiding income in secret Swiss accounts to beware: The new administration in town is closing in.

Shulman issued his warning during testimony Wednesday afternoon before the U.S. Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations. “The pressure will only increase,” he said, advising tax evaders to come forward under the agency’s voluntary disclosure policy to avoid possible criminal liability.

The IRS chief noted that the Barack Obama administration was taking “unprecedented measures” to plug the spigot that is draining $100 billion a year from the U.S. Treasury, including the hiring of new fleets of investigators savvy with offshore audits.

But as strong as Shulman’s language was, he had no immediate solutions to offer for the major fly in the ointment – the age-old banking secrecy policies of the Swiss government.

Tax evasion is not a crime in the neutral country, but divulging information about private accounts is.

Sen. Carl Levin, D-Mich., the committee chairman, voiced his frustration that, even though UBS Global Wealth Management & Swiss Bank has admitted to a conspiracy to aid and abet U.S. taxpayers hiding money abroad, and although the banking giant cut a deal to cooperate with the feds, it has disclosed the identities of only a relative handful of its clients.

The Swiss government refuses to go beyond the strict language of its tax treaties with the United States. Those treaties say that information regarding a U.S. citizen’s private Swiss account can only be surrendered by Swiss authorities if that person is named.

But the problem is that IRS investigators don’t know the names of the tens of thousands of U.S. citizens who have money hidden in Swiss accounts without a corresponding W-9 disclosure of that money to the feds. One of several figures bandied about during the hearing was 47,000.

The Swiss government has opined further that, even if U.S. tax enforcers provide a name, they must offer more than a charge that the offender was avoiding taxes, according to testimony given at the Capitol Hill hearings. There must be shown “proof of affirmative acts of deception and fraud.”

The U.S. Justice Department maintains that under the so-called deferred prosecution agreement it has with UBS, it is a breach not to disclose the identities of the Americans who have hidden money from the IRS. That means that prosecution of the Swiss bank could go forward.

But as John DiCicco, acting assistant attorney general of the Department of Justice's Tax Division, pointed out in his testimony, the Swiss government does not allow for the extradition of its citizens for offenses involving mere tax evasion.

Even if it did, there’s yet another hurdle to jump: a federal district court in Florida that has the final say if a breach has occurred. That court will not be reviewing the current impasse until July.

Under questioning, DiCicco conceded that even the decision to break UBS free of the deferred prosecution agreement may not be made for another couple of years.

DiCicco also conceded that UBS may just be the tip of an iceberg – that other banks and organizations most likely also are guilty of flaunting U.S. laws and hiding the assets of U.S. citizens.

UBS still must pay an agreed $780 million dollars in fines and restitution to Uncle Sam. It also agreed to get out of the business of providing unlawful shelters to U.S. taxpayers. “The business is being exited,” Brannon said.

But Levin launched into Brannon for not getting the errant U.S. tax evaders to turn themselves in. Brannon would say only that the former clients were being subjected to “appropriate controls.” He added that his company has revealed as much as it can without subjecting his own employees to sanctions from the Swiss government.

On Tuesday also on Capitol Hill, U.S. Treasury Secretary Timothy Geithner endorsed legislation to crack down on offshore tax havens, according to a Reuters report. The endorsement came at a congressional hearing where he was asked about the tax haven bills unveiled on Monday in both the Senate and the House of Representatives.

“We fully support the legislation . . . on offshore tax centers, and we look forward to working with you as part of the broader effort to address international tax evasion,” Geithner told the House Ways and Means Committee.

The administration’s support greatly improves the chances of offshore tax legislation becoming law this year, said Levin, chief sponsor of the Senate bill.

“It also sends a strong signal to tax havens that this administration is not going to tolerate the kind of offshore tax abuses that have been draining $100 billion a year from the U.S. Treasury,” Levin concluded.

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