Law Makers Attack Offshore Tax Evasion with New Bill
A bill aimed at obtaining greater information from foreign banks about US citizens and corporations with overseas accounts was introduced recently in Congress. If passed, the new law would curb the use of offshore accounts by US citizens to shield assets from taxation and severely penalize those individuals and organizations who continue to do so.
The new legislation represents the latest effort by law makers to prevent Americans from using offshore accounts to evade their US tax obligations. Earlier this year, the US put pressure on foreign banks, including Lloyds TSB and UBS AG, to turn over the names of American account holders involved in fraudulent schemes to hide their assets from the IRS.
The Treasury Department estimates that the US loses billions of dollars in tax revenue each year from offshore accounts. If passed, the bill could raise $8.5 billion in revenue for the US government within ten years.
Powerful Players Back the Bill
The chief architects of the bill happen to chair two of the most powerful and influential committees in Congress: Senate Finance Chairman Max Baucus (D-Mont) and House Ways and Means Committee Chairman Charles Rangel (D-NY). They also have the full support of the White House, with President Obama having proposed some of the key components of the bill earlier in the year. Additionally, the Treasury Department has been asking Congress to take action against those who are using offshore accounts to evade taxes for some time, making this bill strongly desired not only by powerful players on Capitol Hill, but also by the US President and Treasury Department.
Steep Penalties Imposed by Bill
Under the proposed legislation, foreign financial institutions would be forced to turn over the names and account activity of US citizen account holders on an annual basis to the Treasury Department or face a 30% withholding tax on any income from US assets. The bill defines “foreign financial institutions” broadly so that it includes not only banks, but also foreign custodians and depositories and offshore equity and hedge funds.
The foreign financial institutions also would be required to obtain a waiver from US account holders of any foreign law that would otherwise prohibit the financial institution from turning over the requested information to the Treasury Department. If the account holder refused to sign the waiver, then the financial institution must close the account.
In addition, US citizens with foreign financial assets with an aggregate value of more than $50,000 must provide information about those assets with their annual US tax return. This includes any financial account maintained by a foreign financial institution, which could include foreign stocks, any interest in a foreign entity and foreign-issued contracts held for investment. Those who fail to report their foreign assets or underreported the value of those assets would be assessed a 40% penalty.
Other bill highlights:
- Increases the statute of limitations for tax evasion cases
- Imposes 30% tax on dividend equivalent payments
- Requires foreign corporations and trusts to turn over the names of any US citizens owning more than ten percent of their shares to the US Treasury Department
- Repeals bearer bond interest deductions
- Imposes penalties on financial advisors who help US taxpayers obtain any type of interest in a foreign entity and fail to file the appropriate information return
Some have criticized the bill for not doing enough to go after those who hide assets in offshore accounts. For example, the White House wanted to create a legal presumption in favor of the IRS in tax evasion prosecutions. While Chairman Baucus is hopeful the bill will be passed into law before the year is over, others believe it will not come up for a vote until 2010.
Contact an Experienced Tax Attorney Today
If you keep assets in an offshore account and have questions about your reporting and disclosure duties to the IRS, contact an experienced tax attorney today for a confidential consultation. It is better to seek experienced assistance today regarding any unreported or underreported assets than wait for the IRS to contact you. With timely action, you may be able to limit the amount of penalties and fines assessed against you as well as the potential for criminal prosecution.