Legislation recoups $8.5 billion lost to overseas tax evasion

The Chairmen of the House Ways and Means Committee and Senate Finance Committee, along with senior committee members, unveiled a comprehensive proposal today to clamp down on offshore tax evasion by giving the IRS new tools to detect, deter and discourage offshore tax abuses.  Representative Levin is a member of the Ways and Means Committee and original co-sponsor of the legislation.

“It is too easy today for someone to avoid paying their taxes by hiding behind foreign bank accounts,” said Rep. Levin.  “These evaders pocket tens of billions of dollars while honest taxpayers are left holding the bill.  This legislation reflects years of work by, among others, my brother Carl to highlight the problem of offshore tax havens.  While we need to continue to look for additional ways to stop offshore tax abuse, this bill says very simply to foreign banks that if they want access to US markets they must report the same information on US customers that US banks do.”

The Foreign Account Tax Compliance Act would force foreign financial institutions, foreign trusts, and foreign corporations to provide information about their U.S. accountholders, grantors, and owners, respectively. The nonpartisan Joint Committee on Taxation has estimated the provisions of the Foreign Account Tax Compliance Act would prevent U.S. individuals from evading $8.5 billion in U.S. tax over the next ten years.

Important measures in the proposal include:  

    * The bill requires 30% 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.
       
    * Individuals and entities would be required to report offshore accounts with values of $50,000 or more on their tax returns.  The statute of limitations will be extended to six years when offshore accounts are unreported or misreported.
       
    * 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 bill strengthens 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.

A Joint Committee on Taxation (JCT) technical explanation of the Foreign Account Tax Compliance Act of 2009 from is available on their website here: http://jct.gov/.