According to politicians, a huge loophole in American tax rules allows the wealthy to hide billions of dollars abroad in international bank accounts.
Despite the fact that Americans are required by law to disclose any foreign bank accounts and pay taxes on all income earned, not all of them do so, and a 12-year-old law intended to combat offshore tax evasion is simple to get around, according to a report released on Wednesday by the Senate Finance Committee.
As a consequence, the study said, “rich people continue to effectively conceal billions in income from the IRS via schemes utilising offshore organisations and hidden bank accounts.”
The example of Robert Brockman, a millionaire accused in the biggest tax evasion case in history, demonstrates how the country’s tax structure has loopholes that may be used to avoid paying taxes.
The Department of Justice accused Brockman of a complicated, decades-long plan involving offshore accounts, foreign trusts, and several shell corporations in which he allegedly concealed more than $2 billion in revenue from the IRS.
Brockman, whose case served as the basis for the Senate Finance probe, passed away earlier this month while getting ready to go to trial. A legal lawsuit is still pending against his estate.
Brockman’s lawyers had maintained that he was too sick to stand trial; however, they did not immediately respond to a request for comment from CBS News.
“The government spent time and money indicting a guy who had advanced dementia and was terminally sick,” Kathy Keneally of Jones Day told Bloomberg after his death.
“Amazingly simple”
According to the article, which cites court papers, Brockman reportedly used his shell businesses to pose as financial institutions in order to conceal his income.
The Foreign Account Tax Compliance Act of 2010, often known as FATCA, mandates that foreign financial institutions ascertain if certain accounts are owned by U.S. residents.
But if the accounts are held by organisations that are also financial institutions, banks are exempt from that obligation.
Legislators claim that Brockman took advantage of this weakness. In addition to being registered with the IRS, the businesses he controlled that were established in other people’s names also got Global Intermediary Identification Numbers (GIIN numbers), enabling them to pose as international financial institutions.
This implies that, unlike what would ordinarily be required, the Swiss banks did not need to check to see whether a U.S. citizen was the account holder when money transferred via these businesses was put into Swiss bank accounts.
Additionally, the research discovered that obtaining a GIIN number from the IRS is “shockingly simple.”
Applications “are virtually usually granted without substantial examination or due diligence from IRS staff” after a person registers online or using a paper form, the Senate panel concluded.
In essence, the study claims that Brockman was permitted to “self-certify” that his accounts were lawful and that neither the IRS nor the Swiss banks looked into it further, exposing a “very problematic vulnerability in the U.S. financial reporting environment.”
“Banks” without investigation
The committee determined that Brockman’s suspected tax fraud is probably simply the tip of the iceberg.
There are 84,000 organisations with GIIN numbers in the Cayman Islands alone, designating them as foreign financial institutions.
“In offshore tax havens, hundreds of thousands of shell firms have been transformed into IRS-approved banks with almost any IRS oversight.
No rocket scientist is required to understand how this loophole results in billions in tax avoidance “The chairman of the Senate Finance Committee, Senator Ron Wyden, made a statement.
IRS budget constraints have made it more difficult for the agency to pursue rich tax fraudsters. Since 2010, the agency’s enforcement workforce has decreased by about a third.
Since an estimated $600 billion in unpaid taxes are not collected each year, that means less money will be available for everything from social services to military expenditures.
Using these offshore shell institutions, the IRS is absolutely outmatched, according to Ashley Schapitl, a representative for Wyden, on Twitter.
This shortfall should be partially filled by a $80 billion increase for the agency under the recently approved Inflation Reduction Act, according to Wyden.
The senator is also promoting a measure that closes the gap for overseas reporting, the senator said.