US Senators Re-Introduce Anti-Offshore Bill

by Glen Shapiro, LawAndTax-News.com, New York

01 August 2005

Sen. Carl Levin, D-Mich., and Sen. Norm Coleman, R-Minn. on Friday introduced a bill in the Senate to combat what they term 'abusive tax shelters and uncooperative offshore tax havens used by businesses and individuals to dodge payment of their US taxes'.

Levin and Coleman introduced a similar bill last year, The Tax Shelter and Tax Haven Reform Act, S. 2210, which was read twice and referred to the Committe on Finance, where it died in December, 2004. Last year's bill was very similar to the new one. Although it was unsuccessful, some of its provisions made it into law by being attached to other pieces of legislation, including stronger penalties for failing to report interests in foreign financial accounts, civil fines for tax practitioners such as accountants and attorneys who violate specified standards of practice, stronger penalties for failing to register or provide to the IRS required information regarding a potentially abusive tax shelter, and stronger penalties for failing to maintain a list of participants in potentially abusive tax shelters.

The 2004 bill also sought to stiffen the penalties imposed on abusive tax shelter promoters from $1,000 per offense to a penalty equal to 150% of the promoter’s profits from selling the abusive shelter. The penalty has since been raised to 50%, but did not go as far as provided in the Levin-Coleman bill. The Senators said: “The penalty increase enacted by Congress in 2004 was a significant improvement over prior law, but letting promoters of abusive tax shelters keep 50% of their ill-gotten gains doesn’t make sense. Congress needs to take stronger action by denying persons who promote tax cheating not only all of their illegal profits, but also requiring their payment of a stiff fine on top of that.”

For the last three years, Levin and Coleman, the senior Democrat and Chairman of the Senate Permanent Subcommittee on Investigations respectively, have been pursuing an investigation into tax shelters developed, marketed, and carried out by accounting firms, banks, investment advisors, and lawyers.

“These tax advisors are getting hundreds of millions of dollars in fees, while robbing the U.S. Treasury of billions of dollars in revenues each year,” said Levin. “We need to strengthen the laws and enforcement mechanisms to stop promoters of abusive tax shelters. We also need to take stronger measures to stop use of offshore tax havens for tax dodges.”

“Abusive tax shelters and uncooperative tax havens undermine our tax system, forcing honest taxpayers to pay more than their fair share,” Coleman said. “We need to give honest, hardworking Americans a better deal – by cracking down on those who choose not to pay their fair share in taxes.”

The Tax Shelter and Tax Haven Reform Act of 2005 proposes the following measures, among others, to clamp down on tax abusers:

• Increase penalties to 150% on persons who promote abusive tax shelters or knowingly aid or abet taxpayers to understate their tax liability. Currently, promoters face only a 50 percent penalty, and aiders and abettors face a maximum penalty of $10,000.
• Prevent abusive tax shelters by prohibiting tax advisors from charging fees linked to alleged tax savings, mandating examination procedures to identify banks contributing to abusive tax shelters, encouraging whistleblowers who report tax schemes, and authorizing the IRS to work with federal agencies like the SEC and bank regulators to strengthen abusive tax shelter enforcement.
• Clarify and codify the economic substance doctrine and by strengthening the penalties for tax transactions lacking economic substance.
• Authorize the Treasury to publish an annual list of uncooperative tax havens, and by ending U.S. tax benefits and requiring greater disclosure for taxpayers transferring funds to such uncooperative tax havens.

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