Democratic leaders of key House and Senate committees have introduced legislation to force foreign financial institutions, trusts and corporations to provide information about their U.S. account holders, grantors and owners.
Individuals and entities would be required to report offshore accounts with values of $50,000 or more on their tax returns. The bill also requires 30 percent withholding on payments to foreign financial institutions and other entities unless they acknowledge the accounts existence to the IRS and disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.
Advisors who help to set up offshore accounts would be required to disclose their activities or pay a penalty. The proposal would also require electronic filing of information reports about withholding on transfers to foreign accounts to enable the IRS to better match reports to tax returns.
The Joint Committee on Taxation estimates the bill would prevent U.S. individuals from evading $8.5 billion in U.S. tax over the next 10 years.
The legislation was introduced by House Ways and Means Committee Chairman Charles Rangel, D-N.Y., Senate Finance Committee Chairman Max Baucus, D-Mont., Ways and Means Select Revenue Subcommittee Chairman Richard Neal, D-Mass., and senior Senate Finance Committee member John Kerry, D-Mass.
This bill offers foreign banks a simple choice if you wish to access our capital markets, you have to report on U.S. account holders, said Rangel in a statement. I am confident that most banks will do the right thing and help to make bank secrecy practices a thing of the past.
The bill would also strengthen rules and penalties with regard to foreign trusts, including rules to determine whether distributions from foreign trusts are going to U.S. beneficiaries and reporting requirements on U.S. transfers to foreign trusts. The legislation clarifies that U.S. dividend payments received by foreign persons are treated as dividends even when couched as another type of distribution in an effort to avoid U.S. taxes.
For too long, individuals have taken advantage of the system by hiding money in accounts overseas, while millions of families and small businesses here at home pay the price," said Treasury Secretary Timothy Geithner in a statement. "This legislation will reduce the amount of taxes lost through the illegal use of hidden accounts and is the next step in making sure that everyone pays their fair share.
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