CLOSING TAX LOOPHOLES

Whether it’s a company setting up sham headquarters in a tax haven outside the United States, an individual using an offshore credit card to hide income, or an entity engaging in a complex transaction to create an artificial paper loss, Congress needs to act to close down the tax loopholes being exploited by those seeking to avoid paying their fair share of taxes. Laws need to be strengthened, penalties need to be increased, and tax enforcement needs to be better funded and improved.

Abusive Tax Schemes

As chairman of the Permanent Subcommittee on Investigations, Senator Levin continues to lead investigations into abusive tax shelters and offshore tax havens used by businesses and individuals to dodge payment of their U.S. taxes.

Offshore tax havens and secrecy jurisdictions today hold trillions of dollars in assets. While these jurisdictions claim to offer clients financial privacy, limited regulation, and low taxes, too often these jurisdictions have instead become havens for tax evasion, financial fraud, and money laundering. A sophisticated offshore industry, composed of a cadre of international professionals including tax attorneys, accountants, bankers, brokers, corporate service providers, and trust administrators, aggressively promotes offshore jurisdictions to U.S. citizens as a means to avoid taxes and creditors in their home jurisdictions.

These professionals, many of whom are located or do business in the United States, advise and assist U.S. citizens on opening offshore accounts, establishing sham trusts and shell corporations, hiding assets offshore, and making secret use of their offshore assets here at home. Experts estimate that Americans now have more than $1 trillion in assets offshore and illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes. U.S. corporations are estimated to illegally evade another $30 billion in taxes each year through offshore tax dodges. America’s working people bear the burden of this $100 billion tax gap.

In August 2006, the Subcommittee held the latest in a series of hearings and reports designed to expose and combat abusive tax practices. The August report and hearing detailed six case histories that revealed how Americans use offshore trusts, corporations, and tax shelters to evade payment of their taxes. In one case history, two brothers built a network of 58 offshore trusts and corporations to avoid paying taxes on hundreds of millions of dollars in income. In another case history, two billionaires, using offshore corporations, staged a fake sale of securities to avoid paying taxes on more than $2 billion in income. The Subcommittee report makes a number of recommendations to combat these abusive tax practices.

Senator Levin supports legislation to close tax haven loopholes that encourage companies to shift income into tax havens to avoid paying U.S. taxes. While we cannot control what other countries do on taxes, we have an obligation to design our tax code in a way that does not give artificial incentives for U.S. companies to utilize offshore tax havens.

PSI Reports on Abusive Tax Schemes:

• Tax Haven Abuses: The Enablers, The Tools and Secrecy - August 1, 2006. [PDF]
• The Role of Professional Firms in the U.S. Tax Shelter Industry - April 13, 2005. [PDF]
• Government Accountability Office report - Tax Shelters: Services Provided by External Auditors - February 2005. [PDF]
• The U.S. Tax Shelter Industry - The Role of Accountants, Lawyers and Financial Professionals - November 18, 2003. [PDF]
• PSI hearing report - The U.S. Tax Shelter Industry - The Role of Accountants, Lawyers and Financial Professionals. (Link is to GPO website - S.Hrg. 108-473.)

Legislation supported by Senator Levin to address these problems:

• S. 1565, Tax Shelter and Tax Haven Reform Act of 2005