Saturday, August 05, 2006


John Kerry-Heinz Comes To Mind

August 05, 2006

Offshore Robbery

Rich Americans bilk U.S. treasury of billions

Wealthy Americans hold $1.6 trillion in offshore accounts, where tax laws and regulations apply little or not at all. That means that 13 cents out of every dollar produced by the American economy can largely evade taxes and oversight. Until this week, it was unclear how vast are the evasive schemes and how much they're costing the national Treasury. Now, we know: A Senate investigation concludes that Americans "illegally evade between $40 and $70 billion in U.S. taxes each year through the use of offshore tax schemes."

Those scams are beyond anything imagined before. The annual cost to the Treasury adds up to the annual price tag of the war in Iraq, the lion's share of the Medicare prescription-drug program or more than twice the budget of the Department of Homeland Security. The scamming is done by the rich, as corporations and wealthy individuals can retain a service most others can't afford: tax attorneys. The attorney's role is to help clients take advantage of the tax code's many loopholes. Offshoring is not a loophole. It's the tax code's Grand Canyon.

Some examples: Kurt Greaves is a Michigan businessman. Browsing an in-flight magazine during a trip, he saw an ad for off-shore accounts. (The ads are legal. The accounts are out of the law's reach). He contacted Terry Neal, the Oregon-based "offshore promoter." Under Neal's guidance, Greaves, the Senate report states, "used a variety of sham transactions to transfer untaxed business income offshore without giving up the ability to use and manage those funds." The amounts evading U.S. tax laws added up to between $400,000 and $500,000. Along the way, documents were fabricated to support fictitious tax deductions, shell corporations were created in Nevada and fictitious bills and loans written to move money around. Greaves pleaded guilty to tax evasion in 2004. But he's among the minority who get caught.

Quellos Group LLC is a Seattle-based securities firm that designed and promoted an offshore tax shelter to help five wealthy clients shield more than $2 billion in capital gains from taxes, costing the Treasury more than $300 million. A meaningless sum? Not if you think of it this way: There are 14 ongoing major road-improvement projects in Volusia and Flagler counties, including a $100 million widening of Interstate 95 up to the St. Johns County line and a $26 million widening of State Road 44 from Interstate 4 to Pioneer Trail. All 14 projects, stretched out over several years, add up to $214 million, much of it federal money every congressman battles over for his or her district. And the five "clients," already rich beyond most people's dreams, managed to scam the same pot out of $300 million that could have improved the daily lives of, say, 100,000 ordinary Americans in Volusia and Flagler.

Multiply that sort of scamming thousands of times over, and the $40 billion to $70 billion a year tax cheats are getting away with translates to the daily robbery of honest wage-earning, taxpaying Americans.

How to stop it? First, tax-and-securities law can and should be rewritten to make any American citizen using an offshore account the presumed owner of those accounts. That eliminates the shielding strategy many "investors" use to claim that their money was in someone else's trust, that they were mere victims of schemes and money-laundering. Publicly traded companies should clearly indicate in their financial filings what and where they may have offshore holdings. Any offshore company in any way related to an American corporation or one of its main shareholders (or directors) should be considered a part of that corporation -- not an "independent" affiliate that operates, as so many do now, in a vacuum of corporate laws and regulations. Those measures would be a start.

How to monitor them? For one, redirect the Internal Revenue Service's focus away from low-income earners to high-income earners and corporations. In 1996, 3.2 percent of audits were conducted on high-income earners. In 2005? The proportion was down to 1.5 percent. And, last week, the IRS announced plans to fire 157 of the 345 lawyers who audit estate and gift tax returns. With moves like that, directed by the White House, it's as if the government wants to starve the Treasury of money every way it can. That, too, is a scam overwhelmingly favoring the wealthy. But one scam at a time: Now the facts are out about offshoring's scandalous extent, Congress has no excuse but to end the cheating, unless, that is, Congress is implicitly in on the scam.