US to Probe Thousands More Offshore Tax Evaders

From Reuters.com:

The U.S. government expects to probe thousands more cases of wealthy individuals dodging taxes through offshore bank accounts, on top of the high profile case against UBS AG (UBS.N) (UBSN.VX), a U.S. tax attorney said on Monday.

"We expect over the next couple of years, in addition to the UBS cases, to have somewhere between 4,000 and 7,000 more cases coming to us with. These are from banks and governments cooperating," said Kevin Downing, a senior tax attorney of the U.S. Department of Justice, in a lecture in Singapore.

Some private banking clients are choosing to take cash from Swiss accounts and carry it by hand back to the United States, to avoid an electronic trail, only to be caught by U.S. law enforcement officers and penalized for tax evasion and illegal smuggling of money into the country, Downing said.

"When they go in and close their accounts, they are picking up brand new $100 bills ... that are coming in $100,000 shrink-wrapped bundles. Guess what? We can trace that money," he said, adding such cash would be forfeited.

Singapore was one stop in a tour of Asian cities also including Hong Kong, Beijing and Shanghai by Downing and his U.S. Justice Department team. The tour featured meetings with financial and tax regulatory bodies and bankers discussing cross-border tax prosecutions.

States Offer Tax Evaders with Offshore Accounts a Deal

The Federal governments popular taxpayer amnesty program has allowed hundreds of Americans with offshore accounts come forward and avoid criminal prosecution and/or excessive monetary penalties. After seeing the success of the Federal program, some states – including Connecticut, New York and Hawaii – are offering similar programs as well. You can find a segment of a USA Today article on this new development below.

The IRS isn't the only government agency urging Americans with secret offshore bank accounts to disclose their holdings and pay overdue taxes. Several states have begun similar efforts.

More than 3,000 offshore account owners have applied for an IRS voluntary disclosure program since it began in March, lured by reduced fines and the prospect of avoiding criminal charges.

The IRS started the program amid what proved to be a successful federal court battle to force Swiss banking giant UBS to turn over the names of thousands of Americans with undeclared accounts. UBS recently began notifying American clients their names would be disclosed.

As the Oct. 15 application deadline for federal leniency nears, Connecticut and Hawaii are mounting efforts modeled on the IRS program. Oregon, New York and at least four other states have disclosure programs or amnesties that are open to offshore-account owners.

"It is only a matter of time before we find these taxpayers," said Richard Nicholson, head of Connecticut's Department of Revenue Services, as he announced its program last week.

That's because income-tax-return adjustments and other data the IRS develops under its program may be shared with local tax counterparts, said IRS spokesman Bruce Friedland. The state efforts could get that data faster — and generate tax revenue at a time of budget shortfalls.

How Offshore Tax Evasion Affects You

There has been a lot of talk about offshore tax evasion in the news lately. Especially in regards to UBS and new offshore tax evasion enforcement efforts between the U.S. and Switzerland.

Unfortunately, many taxpayers do not pay much attention to these issues, as they do not think that offshore tax issues have anything to do with them personally. However, that is not the case. Offshore tax evasion actually affects nearly every American. And here is how:

National Tax Compliance

The IRS is having a hard time collecting tax debts during the economic crisis. According to recent studies, Federal tax revenue plunged $138 billion—or 34% from last year—which is the biggest drop in almost three decades. A large amount of the lost revenue can be attributed to offshore tax evasion. This leaves the rest of us law-abiding citizens to foot the bill.

While government officials are hoping to generate additional revenue from increased tax compliance, they know that it alone will not cover our expenses. Thus, they anticipate raising taxes on the wealthiest Americans. Plans to raise taxes has left thousands of Americans—rich and poor—disgruntled and willing to protest. In addition to the Tea Parties that were carried out in April, tax protestors are hoping to carry out additional events this July.

Economic Recovery Prevention

Despite lots of effort, the country’s economic recovery is taking some time. As the economy continues to stall, more and more taxpayers are looking for any way possible to reduce their tax liability. A whopping $250 billion of missing revenue from the past decade is said to be missing due to offshore bank accounts. This missing money is essentially preventing the country from making a faster recovery as it prevents the federal government from investing the money into other programs.

President Barack Obama has already taken great strides to recover some of this lost revenue by evoking legal action with popular offshore bank UBS. "Nobody likes to pay taxes, particularly in times of economic stress," Obama said. However a crackdown on "illegal overseas tax evasion" was necessary in order to provide "meaningful relief for hardworking families." He continued to explain that "the way to make American businesses competitive is not to let some individuals and businesses dodge their responsibilities and let ordinary Americans pick up the slack."

State Economies

Not only does offshore banking affect Federal tax revenue, in many instances it drastically affects local and State governments. According to a recent study observed in Montana's Clark Fork Chronicle, "non-residents who have Montana earned income fail to pay income taxes at an astonishing rate of 78%". This statistic seems staggering, but is actually not as uncommon as you would think. Some states do not have very strong tax enforcement agencies, which can quickly lead to millions of dollars in lost revenue. Montana and other States in similar situations cite offshore banking as a large contributor to the problem, claiming that they simply cannot keep track of all of their out-of-state taxpayers so easily, let alone investigate their offshore bank accounts.

Organized Crime Ties

While not all offshore bank accounts are being managed illegally, even the more humble ones can unknowingly foster criminal activity. It is a well-known fact that organized crime uses offshore bank accounts to disguise their criminal activity. Offshore banking protects the "underground economy". The most common of crimes is of course money laundering, which is made all the easier with offshore bank accounts that are highly protected and usually well disguised.