Tax accountants who help U.S. taxpayers hide their income in foreign banks are in the crosshairs of a new push by Congress and the Obama administration to crack down on offshore tax haven cheats.
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Legislation introduced by House Ways and Means Committee Chairman Charlie Rangel, D-N.Y., and Rep. Richard E. Neal, D-Mass., calls for tightening the screws on Americans and others who use foreign banks to avoid U.S. taxes.
The bill, dubbed the Foreign Account Tax Compliance Act of 2009, would impose heavy new penalties on U.S. taxpayers who fail to properly report income held in banks abroad. But tax accountants and other financial advisors who assist U.S. individuals in forming or acquiring foreign entities would themselves be subject to new reporting requirements under the bill.
The legislation would also put new pressure on foreign financial institutions to report the identities of all U.S. accountholders to the Internal Revenue Service. Taxpayers who deposit funds in offshore banks that refuse to enter into such reporting agreements with the IRS would be subject to a stiff new U.S. withholding tax on deposits of U.S.-source income or gross proceeds from the sale of certain assets producing U.S.-source income.
The bill drew a solid thumbs-up from Obama administration officials during recent hearings before Neals Ways and Means Subcommittee on Select Revenue Measures.
Testifying before that panel, Deputy Assistant Treasury Secretary Stephen E. Shay called the proposal an important step toward reducing the amount of taxes lost through illegal use of hidden accounts in offshore tax havens.
For those taxpayers who persist in attempting to evade taxes through offshore accounts, the bills new enforcement tools would greatly assist the IRS in identifying those taxpayers and collecting the taxes they owe, he told Congress.
IRS Chief Counsel William J. Wilkins echoed Shays endorsement of the legislation, testifying that the bill meshes neatly with his agencys ongoing campaign to convince taxpayers to voluntarily disclose and pay tax on offshore income.
So far this strategy is already producing results [as] over 7,500 people came forward under its special offshore voluntary compliance program that ended in mid-October, he told the subcommittee.
The next step, he said, will be for IRS to begin mining the voluntary disclosure information from people who have come forward to identify accountants and other professionals who enabled taxpayers to evade U.S. taxes abroad.
We will be scouring this information to identify financial institutions, advisors and others who promoted or otherwise helped U.S. taxpayers hide assets and income offshore and skirt their tax responsibilities at home, he told Congress.