During the hearing, Sen. Max Baucus (D-Mont.), the Chairman of the Senate Finance Committee, which has jurisdiction over tax law, pushed a panel of witnesses on the findings of a Government Accountability Office (GAO) investigation of the now notorious Ugland House, home to a legal firm in the Cayman Islands that has nearly 19,000 registered companies, approximately half of which are American.

Jack Blum, Counsel at Washington D.C. law firm Baker & Hostetler, concurred with the Senator. The other witnesses, who included Michael Brostek Director, Tax Issues, General Accounting Office, and Frank Ng, Director IRS Large Mid-Size Business, were also supportive of more stringent reporting rules.

Baucus asked if one solution might be to require financial firms to file information reports to the Internal Revenue Service (IRS) when they facilitate transfers of client funds offshore, as a method of enabling the IRS to better track tax evaders by matching that report with filed returns.

“This is about finding out whether folks are paying the taxes they legally owe, or whether they’re seeking to run around US tax laws. Our duty is to help the IRS do its job and part of that job is tracking and prosecuting individuals and entities that evade taxes. I will not condone US taxpayers who knowingly and illegally avoid paying their fair share by storing money offshore. It burdens honest taxpayers and threatens the entire tax system,” Baucus remarked.

“I think requiring individuals and companies to be more forthcoming about their offshore holdings in places like the Caymans will go a long way. It’s clear from today’s testimony that we have an opportunity – indeed a duty – to find legislative solutions to pressure the IRS and better enable them to collect on the nearly USD345 billion annually of legally-owed but unpaid taxes," he added.

Chairman Baucus also sought input on six legislative recommendations, including modifying the rules for the Foreign Bank Account Report (FBAR), which facilitates information collection by the IRS. The proposals would reinforce the role of the IRS in levying penalties against individuals who fail to file an FBAR, increase the statute of limitations for FBAR violations, require that FBARs be filed with tax returns, and strengthen rules on the disclosure of the identity of individuals who make money from offshore financial transactions.

According to Baucus, the witnesses who testified at the hearing concurred that the proposals would make strides in beginning to solve the problem of offshore tax evasion. Other recommendations from the witnesses included revising current IRS Form W-8 procedures to require foreign companies to prove they are an active trade or business.

The Senate is due to continue its offshore scrutiny today (25th July) with the Permanent Subcommittee on Investigations's second hearing into the issue of offshore banking and US tax compliance. This Subcommittee is chaired by noted anti-tax haven campaigner Sen. Carl Levin (D - Mich.), who is seeking to break the "iron ring of secrecy around tax haven banks and their deceptive banking practices" arguing that they "enable and encourage tax cheats to hide assets from the United States."

The Subcommittee's campaign was given added impetus after Swiss banking giant UBS was accused by the US authorities of helping its US clients to evade tax at home, leading the bank to announce at the Subcommittee's first hearing on 17th July that it would no longer provide offshore banking and securities services to US residents through its bank branches.