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IRS recoups $5.5 billion from tax cheats

By Stephen Ohlemacher

Associated Press

LAST UPDATED: 06:46 a.m. HST, Apr 27, 2013

WASHINGTON » The Internal Revenue Service has recouped more than $5.5 billion under a series of programs that offered reduced penalties and no jail time to people who voluntarily disclosed assets they were hiding overseas, government investigators said Friday.

In all, more than 39,000 tax cheats have come clean under the programs.

But there's more.

Government investigators suspect that thousands of other taxpayers have quietly started reporting foreign accounts without paying any penalties or interest. The number of people reporting foreign accounts to the IRS nearly doubled from 2007 to 2010, to 516,000 accounts, a report by the Government Accountability Office said.

The sharp increase suggests that some people are simply starting to report their accounts without taking part in the disclosure programs, the report said.

"IRS has detected some taxpayers with previously undisclosed offshore accounts attempting to circumvent paying the taxes, interest and penalties that would otherwise be owed," the report said. "But based on GAO reviews of IRS data, IRS may be missing attempts by other taxpayers attempting to do so."

Some taxpayers try to avoid penalties through a technique the IRS calls "quiet disclosure," in which they file amended tax returns that report offshore income from prior years. Others simply declare existing offshore accounts for the first time with their current year's tax return, the report said.

"If successful, these techniques result in lost revenue for the Treasury and undermine the offshore programs' fairness and effectiveness," the report said.

Peter Zeidenberg, a partner at the law firm DLA Piper in Washington, said it's pretty obvious that people are starting to report foreign accounts that probably existed for years.

"I don't think you get an increase like that from people just all of a sudden getting the idea I'm going to open an account in Switzerland," Zeidenberg said.

Acting IRS Commissioner Steven Miller said catching overseas tax dodgers is a top priority of the agency. In a written response to the report, he said the agency is working to improve the way it identifies people who are still trying get around the agency's disclosure programs.

The IRS has run four voluntary disclosure programs since 2003. The last three — in 2009, 2011 and 2012 — have yielded almost all of the $5.5 billion in back taxes, penalties and interest. The latest program is still open.

The agency stepped up its efforts in 2009, when Swiss banking giant UBS AG agreed to pay a $780 million fine and turn over details on thousands of accounts suspected of holding undeclared assets from American customers.

The GAO's report looked at data from the 2009 program. More than 10,000 cases from that program have been closed so far. The median account balance: $570,000.

U.S. taxpayers can hold offshore accounts for a number of legitimate reasons, the report says. They may want to diversify their investments, facilitate international business transactions or get easier access to money while living or working overseas.

But, the report notes, "some use them to illegally reduce their tax liabilities, often by not reporting the income earned on these accounts."

Taxpayers with foreign accounts totaling more than $10,000 must report them to the IRS or face stiff penalties.

The IRS has long had a policy that certain tax evaders who come forward can usually avoid jail time as long as they agree to pay back taxes, interest and hefty penalties. Drug dealers and money launderers need not apply. But if the money was earned legally, tax evaders can usually avoid criminal prosecution.

Fewer than 100 people apply for the program in a typical year, in part because the penalties can far exceed the value of the hidden account, depending on how long the account holder has evaded U.S. taxes.

The disclosure programs offered reduced penalties, but they were not a complete amnesty. In the 2009 program, most of the tax cheats were required to forfeit 20 percent of their accounts, the report said.

Miller said the agency is using information from people who have come forward to target banks and financial advisers.

The disclosure programs helped build political momentum to pass a law in 2010 that will require foreign banks to report U.S. account holders to U.S. authorities, said Ian Comisky, partner at Blank, Rome, a law firm based in Philadelphia.

If foreign governments refuse to disclose the information, U.S. banks must withhold 30 percent of certain payments to financial institutions in those countries — a big incentive for countries to cooperate.

Together, the disclosure programs and the new law offer a powerful incentive for tax dodgers to come clean, Comisky said.

"They are more scared, and they are coming in where they might have been sitting out in the cold," Comisky said. "Now they're trying to come in, even if there's a penalty to do so."

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cojef wrote:
Guilty conscience made them do it or they are ready to face their Maker and now must distribute the assets to their heirs and will have disclose where those funds are located. In either case, the IRS benefits and all the honest taxpayers.
on April 27,2013 | 08:14AM
Changalang wrote:
This comment has been deleted.
on April 27,2013 | 08:53AM
bekwell wrote:
Define fair share. Everyone should pay a flat fee income tax amount, and keep the money they worked for instead of giving it to Obama to spend overseas.
on April 28,2013 | 05:06AM
ready2go wrote:
What eveer happened to the move in Congress to punich these tax cheaters by taking away their US citizenships? It sounds like a good idea ithat they should move to another Country.
on April 27,2013 | 08:27AM
hawaiikone wrote:
Big pockets will draw attention, and the return obviously justifies the radar, although a larger screen may pick up some interesting activity from some smaller pockets too.
on April 27,2013 | 09:29AM
noheawilli wrote:
I always thought this to be an odd offense. So I earn money, pay income taxes on that money, and choose to place that outside the US economy, where it further earns money, how am I in any way obliged to the irs? Wise diversification should encourage us to have assets in multiple currencies yet our leviathan lays a fee on even that.
on April 27,2013 | 10:04AM
rigormortis wrote:
It's all about control, monitoring, and garnishing your accounts. The IRS needs these data to administer government healthcare and subsequent taxes. How else are they going to decide who needs what programs; by filling a disclosure affadavit? Just saying...you probably figured that out already.
on April 28,2013 | 06:35AM
rigormortis wrote:
The same straw that makes direct deposits/refunds can make withdrawls. Remember with the IRS, you're guilty until proven innocent.
on April 28,2013 | 06:38AM
iwanaknow wrote:
Long over due, and more to come..................the tax man wants his pound of flesh ya?
on April 27,2013 | 10:46AM
Pocho wrote:
So, is Mitt on the list of cheats?
on April 27,2013 | 11:55AM
false wrote:
Meanwhile our government gives the banisters 85 Billion a month. No problem.
on April 27,2013 | 12:22PM
Bumby wrote:
The IRS and the Federal Reserve are not the U.S. Government. They are private corporations run by the the money mongrels of the world. Collecting taxes from every country to pay loans they create so these countries are in debt paying interest each year for eternity. Can you imagine if our country had no debt. How much better it will be in the infinite future for all its citizens.
on April 27,2013 | 06:13PM
kailua000 wrote:
Glad to hear. can help us pay for the consulting firm fee f $8M hired by the WH to promote Obama Care.
on April 28,2013 | 03:29AM
sailfish1 wrote:
What about American corporations? Do they bring back all their international earnings and pay taxes on it? Wasn't there news recently about Apple keeping lots of their earnings overseas so that they don't have to pay U.S. taxes on those earnings? It's not just Apple, every major U.S. corporation makes and sells products overseas.
on April 28,2013 | 05:16AM
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