US Senate Gets Tough On Tax Avoidance

by Mike Godfrey, Tax-News.com, Washington

12 April 2002

Under the title: Schemes, Scams and Cons, Part II: The IRS Strikes Back, the US Senate Finance Committee yesterday held a hearing on the problem of improper tax avoidance by US citizens and corporations.

Saying that lack of resources forced the IRS to concentrate on only the most egregious of tax abuses, Charles O. Rossotti, IRS Commissioner, used charts and tables to demonstrate the complexity and extent of tax frauds.

General Accounting Office analyst Michael Brostek told the Committee that IRS officials estimate $20 billion to $40 billion of revenue is lost each year due to individuals' offshore tax scams. An IRS consultant estimated that, including corporate activity, offshore schemes cost the government as much as $70 billion a year. The IRS has estimated as many as two million US taxpayers might be tapping offshore accounts with credit cards.

As an example, Government officials said clients of Anderson's Ark & Associates took more than $100 million of false deductions over several years. The disclosure came as federal prosecutors in Washington state unsealed guilty pleas by two accountants who worked with Anderson's Ark, which prosecutors say used a Costa Rican trust operation to help clients launder money and avoid US taxes.

The ranking Democrat and Republican members of the Committee, Max Baucus (Dem. Montana) and Charles Grassley (Rep. Iowa) also announced yesterday that they would shortly introduce legislation to block companies from renouncing their US corporate citizenship simply by setting up a shell office abroad.

The bill, to be known as the "Repo Act", would prevent companies from escaping US corporate taxation simply by executing paper transactions to relocate their head office.

Charles 'Chuck' Grassley yesterday accused the companies involved of being "immoral" for abandoning the US at a time of war and recession.

Although the Repo Act is quite likely to pass the Senate, it will encounter problems in the House, and is not supported by the administration, which argues that the underlying problem is that higher corporate taxes have forced many companies to move offshore to remain competitive. The Treasury department is set to release by the end of this month a study that will detail the problem.

The administration would like to see a much broader debate over whether the US corporate tax system should be fundamentally overhauled. House Republicans, in particular, are pushing for a complete rewrite of the corporate tax code.

Recommended