Internal Revenue Service: Offshore accounts yield $5.5 billion
Thousands of U.S. citizens with offshore accounts have fessed up to hiding money and paid the Internal Revenue Service about $5.5 billion in back taxes as a result of information leaks from various foreign banks, the federal government reported Friday.
Under an IRS program initiated in 2003, people who voluntarily disclose hidden funds face reduced penalties and less threat of prosecution. It did not hurt that the media have reported that certain names had leaked from offshore accounts at USB, HSBC and other banks, the Government Accountability Office said.
Between 2003 and 2010, the number of foreign bank accounts reported to the IRS has more than doubled, from 243,000 a year to more than 500,000, the GAO reported.
Nevertheless, the amounts being recovered by the IRS are a “drop in the bucket” compared with what is really going on, said Clark Gascoigne, spokesperson for Washington-based Global Financial Integrity. His organization estimates that the United States alone loses $150 billion a year in tax revenue because of tax havens in about 70 offshore jurisdictions in the Caribbean and elsewhere.
“I mean $5.5 billion is good, but it's not a large amount in the bigger picture,” Gascoigne told the Tribune-Review.
A special investigation by the Trib last year called “$hadow Economy” revealed that more than $21 trillion worldwide was hidden in offshore accounts, unavailable to help the United States and other countries whose economies have been struggling.
To show how easily offshore accounts can be established and used, two Trib reporters spent less than $1,000 to establish both a shell corporation and a linked offshore bank account in Belize. The reporters are believed to be the first media to establish such an offshore account and then complete actual withdrawals from ATMs in Pittsburgh. The account has since been closed.
Shadow Economy won a national business reporting award from Scripps Howard, which will be presented at a dinner May 9 in Naples, Fla.
Subsequent reporting by dozens of international reporters working with a Washington-based consortium affirmed many of the Trib's findings. The director of that investigative effort obtained a hard disk containing records from two small companies that specialize in establishing offshore businesses.
The consortium did not respond to repeated inquiries asking if the disk contained any actual banking records. Hundreds of companies help set up international businesses and trusts. But the disclosure by whistle-blowers of banking records is what sparked many taxpayers to make payments through the IRS forgiveness program, the GAO said.
Much of the offshore banking world is completely legal and used to facilitate business transactions that legally shift profits from high-taxed countries to low- or no-tax countries, the Trib reported.
But the Trib investigation showed there is a shadowy side to the world economy that allows so much money to be placed in hidden accounts that it has nearly bankrupted certain European countries. It also has sparked new emphasis in stopping those who use bank secrecy to avoid the tax man.
In the past two weeks, Great Britain cracked down on Crown dependencies the Isle of Man and the Channel Islands and began discussions with British territories the Cayman Islands and the British Virgin Islands.
The Trib report pointed out that rich Europeans and Americans are not the only ones using the offshore system. The biggest offenders come from China, where wealthy tax evaders and those hedging bets on the future have improperly hidden an estimated $2.74 trillion in offshore accounts, according to GFI.
Some African strongmen put more money in their offshore accounts than their countries receive in international aid, the Trib found.
The United States is just as guilty as Switzerland and jurisdictions such as Cyprus in allowing hidden tax accounts, the newspaper reported. States like Wyoming and Delaware are popular hiding places because of favorable state laws and the lack of a uniform national reporting law.
Lou Kilzer is a staff writer for Trib Total Media. He can be reached at 412-380-5628 or email@example.com.