The US Internal Revenue Service (IRS) will today seek advise from six major audit firms to find out what more can be done to improve systems
of reporting so that US taxpayers do not find it as easy to hide their wealth
in offshore bank accounts.
According to media reports, the IRS has scheduled a conference call for 8th
July between agency officials and representatives from audit firms Deloitte,
Ernst & Young, KPMG, PricewaterhouseCoopers, Grant Thornton, and BDO Seidman
to discuss failings in the United States's Qualified Intermediary (QI) program,
which was set up in 2000 to address concerns relating to tax evasion via foreign
accounts.
"We are concerned generally by what we are seeing and hearing" about
the conduct of some foreign banks, the IRS told the audit firms in an email,
which was quoted by Bloomberg News in an article published on 3rd July.
The move comes as the US authorities prepare to prosecute the first major case
in what is expected to be a prolonged crackdown on secret offshore bank accounts.
Last month, former UBS Banker Bradley Birkenfeld pleaded guilty to conspiring
with an American billionaire real estate developer, Swiss bankers and his co-defendant,
Mario Staggl, to help the developer evade paying USD7.2mn in taxes by assisting
in concealing USD200mn of assets in Switzerland and Liechtenstein. Meanwhile,
on 1st July, a federal judge in Miami issued an order authorizing the IRS to
request information from Switzerland-based UBS about US taxpayers who may be
using Swiss bank accounts to evade federal income taxes.
The QI program put in place a mechanism whereby banks report certain details
about their US clients to the IRS in return for a more lenient rate of withholding
tax on client income. But because the system covers individuals and not companies,
it is thought that many wealthy clients of offshore banks have been encouraged
to set up corporate entities to sidestep the reporting requirements.
While QIs participating in the program are audited by an outside audit firm,
these auditors are under no obligation to report suspected cases of tax evasion
or fraud, and it is understood that the IRS is keen for the big six audit firms
to play a greater role in policing the system.
These concerns have already been highlighted in an examination of the QI program
by the US Government Accountability Office (GAO) earlier this year, which found
that US withholding agents are not required to verify the foreign status of
self-certified taxpayers in the QI program. Additionally, it confirmed that QI auditors
are not required to follow up on indications of fraud or illegal acts, and owners
of offshore corporations can shield their identity from IRS scrutiny.
The GAO identified USD19 billion flowing to countries that could not be identified,
and USD7 billion flowing to individuals that could not be identified. Foreign
corporations received USD200 billion of the USD300 billion examined by GAO.
As a result of the findings, the GAO recommended that the IRS: enhance external
reviews of Qualified Intermediaries; require electronic filing of forms in QI
contracts whenever possible; measure US withholding agents’ reliance on
self-certified documentation and use that data in its compliance efforts; and
determine why certain jurisdictions and recipients receiving US dollars cannot
be identified.
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