The Senate Finance Committee held a hearing on the use of offshore corporate tax shelters in the Cayman Islands, on the heels of hearings elsewhere in the Senate on individual tax havens in Switzerland and Liechtenstein.
Investigators from the Government Accountability Office
The committee and the GAO are probing the presence of hedge funds and other financial institutions in the Cayman Islands, the amount of assets involved, the ease with which U.S. citizens can establish a Cayman Islands company, and the challenges faced by the IRS in trying to uncover offshore tax evasion.
The GAO found that the Caymans have $41 million in bank assets for every resident. "Finding these tax cheats is a bit like a game of cat and mouse," said ranking member Chuck Grassley, R-Iowa, in his opening statement. "Only the mouse is hiding its cheese offshore. The IRS needs to be able to stay ahead of the schemers who hide their income offshore. Congress needs to continue giving the IRS more tools to trap the tax cheats."
Both the Senate Finance Committee and the Permanent Subcommittee on Investigations have been examining the use of offshore bank accounts and entities in recent weeks, resulting in a pledge by UBS to stop offering offshore banking in Switzerland to U.S. residents (see
"The qualified intermediary program was introduced in 2001 with the stated purpose of allowing the IRS to get access to information about foreigners investing in the U.S. who were subject to withholding on interest and dividends," said attorney Jack Blum of Baker & Hostetler in his written testimony. "In fact, the program has become a device for concealing the identity of both Americans and foreigners who are cheating on taxes."