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Levin Comment Letter

Levin Comment Letter

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Published by Michael Hudson

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Published by: Michael Hudson on May 17, 2011
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05/17/2011

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JOSEPHI.L!E8ERM
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COMMITTEEONHOMELANDSECURITYANDGOVERNMENTALAFFAIRSWASHINGTON,DC20510-6250
April12,2011VIAEMAIL(Notice.Comments@irscounsel.treas.gov)TheHonorableDouglas
H.
ShulmanCommissionerInternalRevenueService1111ConstitutionAvenue,N.W.Washington,D.C.20224RE:ReportingBankDepositInterestPaidtoNonresidentAliens(REG-146097-09)DearCommissionerShulman:ThepurposeofthisletteristoexpresssupportfortheproposedruletorequireU.S.banksandbroker-dealerstoreporttotheInternalRevenueService(IRS)anydepositinterestincomepaidonaU.S.accountopenedinthenameofanon-U.S.individualresidinginaforeigncountry.FinancialfirmsoperatingintheUnitedStatesalreadydiscloseaccountinformationtotheIRSforallaccountsheldbyU.S.andCanadianresidents;theproposedrulewouldextendthesamedisclosurerequirementstoaccountsheldbyindividualsresidinginothercountriesaswell.
I
TheproposednewdisclosurerequirementwouldnotonlybringparitytohowU.S.andnon-U.S.residentaccountsaredisclosedtotheIRS,butwouldalsostrengthenU.S.
tax
enforcementeffortsinthreeways.First,byenablingtheUnitedStatestoprovideaccountinformationtoothercountries,theproposedrulewouldstrengthentheabilityoftheUnitedStatestooffercooperative,reciprocal
tax
informationexchangearrangementsthatwouldbenefitIRS
tax
enforcementefforts.Second,theexpandeddisclosurerequirementswouldhelpdetectU.S.taxpayerswhoareevadingU.S.taxesbyopeningU.S.accountsandfraudulentlyclaimingforeignstatus.Third,establishingamechanismtoenabletheUnitedStatestodiscloseaccountinformationtoothercountrieswouldreaffirmU.S.oppositiontointernationaltaxevasion,makeitclearourcountryiswillingtodoitsparttostopit,andgivemoralforcetoU.S.effortstoconvinceothercountriestoshareinformationaboutU.S.taxpayerswiththeIRS.Theproposedruleshouldbefurtherstrengthenedbymakingit
dear
that,ifafinancialinstitutionknowsanindividualisthebeneficialownerofanaccountopenedinthenameofanoffshoreshellcorporation,trustorotherentity,itmusttreatthataccountassubjecttothenewdisclosurerequirement.Withoutthisclarification,therulecouldbeeasilycircumventedbyindividualswhoopentheiraccountsinthenameofanoffshoreshellentity.
1
REG-133254-02,67FR50386.
 
-2-GoingOffshoretoEvadeTaxes.Taxevasiontodayofteninvolvesthecrossingofinternationalboundaries,withU.S.taxpayersusingforeignshellcompanies,offshorefinancialaccounts,andtaxhavenstohideassetsandevadedetection.Overthepastdecade,theU.S.PermanentSubcommitteeonInvestigations,whichIchair,hasconductedmultipleinvestigationsexposingwaysinwhichU.S.taxpayersuseoffshoremechanismstohidetaxableincomeandevadetheirU.S.taxobligations.In2003and2005,forexample,theSubcommitteereleasedreportsandheldhearingsshowinghowleadingaccountingfirms,suchasKPMG,designed,marketed,andimplementedabusive
tax
shelterswhich,insomeinstances,madeuseofoffshorefinancialaccountsandtransactionstohelpU.S.taxpayersdodgetheirtaxobligations.iIn2006,theSubcommitteepresentedsixcasestudiesshowinghowfinancialprofessionals,includingbankers,lawyers,accountants,investmentadvisors,andothers,helpedU.S.taxpayersusetaxhavenstoescapeU.S.taxes?In2008,theSubcommitteeexposedhowsomefinancialinstitutionshelpednon-U.S.personsavoidpaymentofU.S.taxesonU.S.stockdividendsbyconductingtransactionsandmovingfundsthroughforeignjurisdictions."In2008and2009,theSubcommitteeshowedhowtwo
tax
havenbanks,UBSAGinSwitzerlandandLGTBankinLiechtenstein,assistedtensofthousandsofU.S.clientstoopenhiddenforeignaccountsthatwerenotdisclosedtotheIRS.5InarecentIRSvoluntarytaxamnestyprogramwhichallowedtaxpayerstodisclosepreviouslyhiddenforeignaccountstotheIRSwithminimaltaxpenalties,over15,000U.S.taxpayerscameforward.TheSubcommitteehasestimatedthatoffshoretaxabuseiscostingtheU.S.Treasury$100billioninlostrevenueseachyear.StrengtheningTaxInformationExchange,TocombatoffshoretaxabusesbyU.S.taxpayers,IRSofficialsoftenmustobtaininformationfromoneormoreforeigngovernments,includinginformationregardingforeignaccountsopenedbyU.S.taxpayers.Foryears,theUnitedStateshasbeenaleadingproponentoftaxinformationsharingarrangementsthatenabletheIRStoobtainthisinformation.Itseffortshaveincludeddevelopingmodeltaxinformationexchangeagreements,"workingwithmultilateralorganizationssuchastheOrganizationofEconomicCooperationandDevelopment(OECD),theJointInternationalTaxShelterInformationCentre,andUnitedNationstoaddresstaxevasionissues,anddevelopingtheQualifiedIntermediaryProgramtoencourageforeignfinancialinstitutionstodisclosetotheIRSU.S.sourceincomeinaccountsheldbyU.S.personsandwithholdtaxesonthatincomeasrequiredbyU.S.taxlaw.
7
TheUnitedStateshasalsoconstructedanetworkofinternationalagreements,includingtaxtreaties,internationaltaxinformationexchangeagreements(TIEAs),
2
"U.S.TaxShelterIndustry:TheRoleofAccountants,Lawyers,andFinancialProfessionals,"S,Hrg,108-473Nov.18and20,2003);"TheRoleofProfessionalFirmsintheU.S,TaxShelterIndustry,"S.Rept.109-54(Aprill3,2005),
J
"TaxHavenAbuses:TheEnablers,TheToolsandSecrecy,"S,Hrg.109-797(Aug.1,2006).
4
"DividendTaxAbuse:HowOffshoreEntitiesDodgeTaxesonU.S.StockDividends,"S.Hrg.110-778(Sept.II,2008).
5
"TaxHavenBanksandU.S.TaxCompliance,"S,Hrg.110-614(July17and25,2008);"TaxHavenBanksandU.S.TaxCompliance:ObtainingtheNamesofU.S,ClientswithSwissAccounts,"S.Hrg,111-30(March4,2009).
6
SeeArticle26oftheU.S.ModelIncomeTaxConvention,availableontheIRSwebsiteatwww.irs.gov,
7
FormoreinformationabouttheQualifiedIntermediaryProgram,see26U.S.c.§§1441-43;Treas.Reg.§1.l441.1(e)(5);RevenueProcedure200-12,2000-4I.R.B.387.
 
-3-
andMutualLegalAssistanceTreaties(MLATs),whichincludemechanismsforexchanginginformationrelatedtotaxenforcement.
8
TheseinternationalarrangementstypicallyenabletheIRStorequestfromthetaxauthorityofanothercountryspecificinformationrelatedtoaspecifictaxpayer.Obtainingtherequestedinformationoftentakesconsiderabletimeandcanbethesubjectoflengthynegotiationsorevenlitigation.
In
additiontothesearrangementswhichallowaninformationexchangeuponrequest,theUnitedStateshasestablishedanautomatedinformationexchangewithCanada,whichenablesthetwocountriestoexchangeinformationonaroutinebasisregardingaccountsopenedbytheirrespectivecitizens.Othercountries,suchasmembersoftheEuropeanUnion(EU),haveestablishedmoreextensiveautomatedtaxinformationsharingagreements,suchastheEUSavingsDirectivewhichenablesmorethantwodozencountriestoexchangeinformationonaroutinebasisaboutaccountsopenedbytheirrespectivecitizens.Inanefforttostrengthenitsabilitytoobtainaccountinformationonanautomatedbasis,in2010,CongressenactedtheForeignAccountTaxComplianceAct("FATCA,,).9FATCAessentiallyrequiresforeignfinancialinstitutionstodisclosetotheIRSonanongoingbasisinformationaboutanyaccountopenedbyorforaU.S.person,orpaya30%withholding
tax
onanyU.S.investmentincomeearnedbythatinstitution.WhileFATCAwillstrengthentheabilityoftheU.S.toobtainaccountinformationonaroutinebasisfromforeignjurisdictions,itdoesnottakeeffectforseveralyearsandisfarfromcomprehensive.Forexample.notallforeignfinancialinstitutionshaveU.S.investmentincome,theeffectivenessofthedisclosurerequirementwilldependuponcollectionofthe30%withholdingtaxfromnoncompliantinstitutions,andsomeforeigngovernmentsmayattempttoblocktheirfinancialinstitutionsfromprovidingtherequestedaccountinformation.TherealityisthattheUnitedStateswillhavetocontinuetorelyontaxinformationexchangearrangementstoreducethebillionsofdollarsinlosttaxrevenueperyearduetooffshoretaxabuses.Onapracticallevel,iftheUnitedStateswantstoforeignjurisdictionstocooperatewithitsinformationrequestsaboutaccountinformation,itmustbeabletoprovidesimilarinformationonareciprocalbasis.Currently,theUnitedStateshasnotestablishedtheproceduresneededtobeabletoexchangeinformationwithothercountriesonaccountsopenedbytheircitizens.Theproposedrulewouldestablishthoseprocedures.Stopping
Fraudulent
ClaimsofForeignStatus.AsecondreasontosupporttheproposedruleisthatitwouldcreateanewmechanismtohelpdetectU.S.taxpayerswhoareblockingdisclosureoftheirU.S.accountstotheIRSbyfalselyclaimingforeignstatus.TheIRSbelievesthatextendingthedisclosurerequirementtoadditionalaccountswillmakeitmoredifficultfortaxpayerstoavoidtheU.S.informationreportingsystem.
10
PastSubcommitteeinvestigationsshowthatsomeU.S.taxpayershavebeenmakingthosetypesoffalseclaimsand
S
ForalistoftheU.S.taxtreatiesandTIEAsnowineffect,seetheIRSwebsiteatwww.irs.gov.
9
TheFATCA,enactedaspartoftheHiringIncentivestoRestoreEmploymentActof2010,Pub.L.11-147(HIREAct),wassignedintolawonMarch10,2010.
10
76FR1105-1108(January7,2011).

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