The Internal Revenue Service’s “amnesty” programme on so-called abusive tax avoidance schemes will not extend to promoters of such arrangements. The IRS has said that US taxpayers hiding income by using credit cards and bank accounts in offshore centers will avoid criminal charges if they come forward by April 15 – disclose the methods used and pay owed taxes. Interest and penalty payments will apply as well. Those who solicited or promoted the schemes will not be given amnesty, however.
According to the IRS, confidentiality laws in some nations have enabled persons to hide large incomes and evade US taxes, “while living lavishly with their plastic.” The tax avoidance schemes reportedly work through the use of foreign-issued debit cards to access foreign accounts or by charges to foreign-issued cards with bills paid out of the foreign accounts. Over the past 2 1/2 years, the IRS has been pursuing its project to obtain records from major credit card companies in an effort to target persons for audits and subsequent prosecution.
Some tax lawyers argue that it will be difficult to prosecute those who market these arrangements because the cards and accounts themselves are legal. The onus, they say, should be on the taxpayer to report income.
After the April 15 deadline, the IRS intends to pursue possible criminal charges for tax evaders — in addition to more significant penalties.
**Information Exchange Agreements**
In the meantime, the U.S. Treasury says it will continue efforts to improve and expand its broad network of bilateral tax treaties and tax information exchange agreements. According to Barbara Olson, Assistant Secretary for Tax Policy *”Better tax information exchange relationships will permit the IRS to obtain the information it needs from other countries so it can pursue tax payers attempting to hide income offshore to avoid their tax obligations.”*
In January of last year The Bahamas signed an agreement with the United States for *”the provision of information with respect to taxes and for other matters”*between the two Governments. Under the agreement, The Bahamas has made a commitment to provide as of 2005 (i.e, for taxable years which begin on January 1, 2004) information relevant to a particular case in circumstances where the United States Government has exhausted all measures within the United States, and where the Ministry of Finance in The Bahamas is of the opinion that sufficient evidence exists to support criminal tax evasion of United States federal tax.
Similar arrangements are slated to begin in 2007 with respect to civil tax offenses under United States Federal tax laws (i.e. for taxable years which begin on January 1, 2006). The Bahamas has continued to seek a level playing field by referencing the terms of similar agreements that the United States may negotiate with other countries. Importantly, information obtained through this agreement cannot be shared with other countries and, in addition to the burden to prove wrong-doing, strong anti-fishing provisions are an integral part of the agreement.
With the January 2002 signing, The Bahamas secured further approval by the US Treasury of its Know-Your-Customer rules and its “Qualified Jurisdiction” status under the Internal Review Services programme. The United States had indicated that an acceptable level of exchange of criminal and civil information was a prescribed condition to renewing QJ status for all countries.
The Agreement has to be ratified by the Bahamas Parliament.
Last month the US Treasury Department and the Internal Revenue Service released final rules designed to curb the promotion and use of abusive tax shelters. Treasury announced six categories of potential tax avoidance transactions covered under the new rules. Effectively, “taxpayers” will be required to disclose and “promoters” will be required to maintain investor lists for:
– Listed transactions (i.e. transactions that have been specifically identified by the IRS as tax avoidance transactions);
– Transactions marketed under conditions of confidentiality;
– Transactions with contractual protection;
– Transactions generating a tax loss exceeding specified amounts;
– Transactions resulting in a book-tax difference exceeding $10 million; and
– Transactions generating a tax credit when the underlying asset is held for a brief period of time.