Here's a piece from another board that may be off topic at first glance, but it shows how far the big guy funds go to evade the eyes of the IRS and presumably the SEC. Hedge funds? Off shore trusts? Desking? Ex-clearing? With the loss of the Canadian off shore, naked shorting scam, is it logical that this money, so often a source of pride for a certain Enterprise Crew, would seek other safe havens and universes of obfuscation.
==========================================================
I.R.S. Aims to Give Teeth to a Program Meant to Counter Offshore Tax Avoidance
By LYNNLEY BROWNING
July 15, 2008
nytimes.com
The Internal Revenue Service plans to tighten the rules for a multibillion-dollar program created to make sure offshore bank customers pay their United States taxes, top tax officials say.
The little-noticed program has come under greater scrutiny amid a widening investigation into whether UBS, the world’s largest private bank, misused the program to help American clients evade federal income taxes through secret offshore entities.
Prosecutors suspect UBS of helping these clients hide as much as $20 billion in assets offshore, thereby evading at least $300 million in taxes. While using offshore accounts is not illegal for United States taxpayers, hiding income in so-called undeclared accounts is.
Known as Qualified Intermediary, the program, which was created in 2001, has allowed foreign banks to funnel hundreds of billions of dollars offshore to United States clients in recent years without disclosing their names to the I.R.S. In exchange, the banks promise to know who their clients are, withhold any taxes due on United States securities in their accounts and send that money to the I.R.S. More than 7,000 foreign banks have signed on to the program.
The program is expected to be a topic on Thursday when a Senate subcommittee holds hearings on offshore tax evasion in Liechtenstein and Switzerland.
Barry Shott, a deputy commissioner of the I.R.S., says the program works because it “puts in place a means for the foreign investor to invest and have favorable withholding, and a hurdle to the U.S. investor who has the aim of going offshore and avoiding the prying eyes of the I.R.S.” The agency has in recent years halted the participation in the program by 100 foreign banks that had violated it, Mr. Shott said.
Still, he said the agency would soon require foreign banks in the program to determine the identities of the actual American clients using trusts, offshore corporations and shell entities.
In particular, he said, foreign banks would be required to determine whether their clients are United States investors hiding behind a foreign shell company to improperly claim lower tax rates from tax treaties with foreign countries — or not pay taxes at all. If they are, then the bank must let the I.R.S. know about that client and withhold taxes on dividends in the account at rates of up to 30 percent, Mr. Shott said. He declined to say whether the new rule would be retroactive or apply to new clients.
Douglas H. Shulman, the I.R.S. commissioner, said the goal of the coming changes “is to get a clear line of sight into the owners of the bank account, and to know where there’s fraud.”
These new rules, which are aimed at United States, not foreign, clients of the banks, would help to peel back some of the layers of banking secrecy that permeate tax havens from Switzerland to the Caribbean, where vast sums of money are hidden from the I.R.S.
Despite its status as a bulwark against tax evasion, the program has lax audit requirements and minimal oversight, its critics say.
Even senior tax lawyers who acknowledge benefits in the program see room for improvement.
“I think the Q.I. program has been quite successful,” said Edward Tanenbaum, chairman of the international tax practice group at Alston & Bird in New York. “But is this a foolproof kind of thing? No.”
Under the current rules, foreign banks in the program typically submit to an external audit, usually done by a major accounting firm, every three years — but the auditors are not required to notify the client or the I.R.S. of any indications of misuse or fraud. Under murky rules, some banks even get audit “waivers.”
But Mr. Shott, the I.R.S. official, said the Treasury Department would soon require auditors to root out fraud and report it to the I.R.S.
In another shift, the I.R.S. says it will soon allow foreign banks in the program to use third-party databases, like those from credit reporting firms, to determine who their clients really are and what taxes they should pay.
The I.R.S. has never disclosed how much the program realizes in taxes. But there are indications that the program brings in only a fraction of what it should, because the banks have found ways around its requirements.
In 2003 alone, banks in the program sent more than $35 billion abroad to individual investors, partnerships, trusts and the like, but withheld taxes of only 5 percent on that amount, according to a study by the Government Accountability Office last December. That was a fraction of the 28 percent to 30 percent standard rates.
The taxes withheld were lower because the entities receiving the income claimed exemptions under foreign tax treaties. If United States investors are behind those entities — and the government thinks they are in many cases — then they are not entitled to the exemptions.
nytimes.com |
