Tax Havens Cost Government A Fortune

Senate Report Says $40B To $70B Lost Annually To Offshore Evasion

(AP)  Offshore tax havens hold trillions of dollars in assets and allow wealthy Americans to avoid paying $40 billion to $70 billion in taxes each year, a Senate panel said in a report being released Tuesday.

The investigative subcommittee of the Senate Homeland Security and Governmental Affairs Committee came to that conclusion after delving for more than a year into offshore tax evasion.

In one tax shelter, detailed in the investigators' lengthy report, $2 billion in capital gains were sheltered from taxation in an arrangement known as POINT, or Personally Optimized Investment Transaction, which took advantage of offshore secrecy.

Its promoters created the tax shelter by making billions of dollars in securities transactions to generate billions of dollars in capital losses, but the transactions were all fake, the investigators concluded.

They were nonetheless used by investors to offset their capital gains and erase taxes owed, and the government lost $300 million, the panel said. Promoters of the scheme told the investigators that the transactions were valid under U.S. tax laws.

The committee's report, prepared for a Tuesday hearing, describes offshore tax havens as a "black box" that allows wealthy Americans to hide money from taxation, regulation and law enforcement. They hide the money with the backing of "an armada of professionals," the report found.

In some cases, the arrangements take the form of a trust or corporation that makes it appear that money sent offshore is no longer in the user's control. Stashing money overseas can run afoul of tax laws when the money continues to be controlled or spent by the person funneling money into the trust or corporation.

To address the problem, tax, securities and money laundering laws should be changed to presume that a U.S. citizen should be taxed on money in a trust or corporation in a country known to the Treasury Department to be a tax haven, said Sen. Carl Levin of Michigan, the top Democrat on the investigative subcommittee.

That would put the burden on the taxpayer to prove the money should not be taxed.

"We've got to end the tax haven abuses. We've got to take some major legislative steps," Levin said in an interview. "I believe these schemes will not be found to be legal."

"Using offshore jurisdictions to shelter income is unfair, and I intend to fix this problem," said Sen. Norm Coleman, R-Minn., the subcommittee chairman.