The Report, OFFSHORE TAX EVASION: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts, by the Senate Permanent Subcommittee on Investigations was released at the end of last month. Senator Carl Levin chairs the Panel and the Report covers lots of ground.

Bashing the Swiss

Looking at the Swiss banking industry it lambasts the Swiss Government for obstructing United States efforts to identify US persons with undisclosed accounts. The Swiss authorities stand accused of lots of wrongdoing – among them: intervening with United States criminal investigations by restricting document production by Swiss banks; pressuring the US to design a non-prosecution program so hundreds of Swiss banks could escape criminal sanctions while excusing those banks from disclosing names of their US account holders; enacting legislation that created new barriers to treaty requests by the US when seeking US client names, and managing to somehow limit the actual disclosure of US client names to a mere few hundred over the past five years.

Bashing the DOJ

The Report also criticizes the Department of Justice (DOJ) for weak enforcement efforts. It examines the DOJ’s actions since 2009, when the agency commenced criminal investigations into various Swiss banks and sought the names of the banks’ US clients. The Report then stings with its details – nearly five years after the UBS case was closed, not much has happened. The DOJ and IRS enforcement efforts to catch the evaders and hold the Swiss banks accountable were accused of being too slow and bogged down. Instead of using the tanks and missiles available in its war chest, the DOJ was merely using pistols and arrows. The Report admonishes that DOJ should have used grand jury subpoenas against the targeted Swiss banks; it should have assisted the IRS in using John Doe summonses to obtain critical information from Switzerland. Instead, DOJ is accused of engaging in prolonged negotiations with the Swiss government under a time-consuming and restrictive treaty process producing very little.

Bashing the FATCA

Perhaps the best read of all, however, are the tips for avoiding the “Foreign Account Tax Compliance Act”, commonly called, “FATCA”. FATCA is set to bite hard on July 1 2014 when withholding by US payors will commence on US- source payments made to foreign (non-US) financial institutions unless such institutions are “FATCA-compliant”. The report unceremoniously criticizes FATCA by detailing its loopholes – inherent weaknesses that could permit offshore accounts of US persons to evade detection. For any of you wanting to know how to avoid FATCA – here are Senator Levin’s tips:

FATCA Reporting Thresholds Can Be Manipulated –

With respect to individuals, FATCA reporting is required for accounts only if the balance in the account exceeds $50,000 at any time during the calendar year. For legal entities, the figure is raised to $250,000. The Report notes that US persons could create multiple low-value accounts and simply evade FATCA reporting. However, the general consensus seems to be that this criticism really amounts to a tempest in a teapot. Realistically, how many US tax evaders will go through such trouble to split millions of undeclared funds into such small denominations within so many bank accounts? For any nefarious readers of my blog — for all your tax planning needs –more information about this “loophole” can be found on page 172 of the Report.

Lack of Information Sharing and Aggregation of Accounts Among Financial Institutions –

Here’s another FATCA avoidance strategy: FATCA requires non-US institutions only to aggregate accounts held by the same person for reporting purposes. It does not provide any mechanism for aggregating accounts held by the same person at multiple financial institutions (nor, might I add, does it require any information sharing among institutions). “A US couple living abroad could maintain three accounts at three banks… together exceeding $1 million, yet legally avoid all FATCA reporting,” the Report provides. I say, this sounds like another tempest in a teapot. FATCA is costing billions of dollars to implement; it is wreaking havoc on the lives of many Americans living overseas. Is the referred “US couple living abroad” worth such a fuss? More information about this loophole can be found on page 172-173 of the Report.

Use of Offshore Shell Corporations –

Another avoidance strategy arises due to various presumptions created by the Treasury Regulations implementing FATCA. Due to the interplay of a series of provisions in the regulations, the Report maintains that their combined effect creates a big fat(CA) loophole that may enable many offshore accounts opened by offshore shell corporations beneficially owned by US persons, to avoid FATCA reporting obligations. Frankly, I had difficulty following the tangled web set out in the Report on this issue. Anyone wishing to untangle that big fat(CA) web should refer to page 173 of the Report.

A big fat(CA) thank you to all those responsible for detailing this wonderful road map to FATCA avoidance!

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