On March 31, the House Ways & Means Subcommittee on Select Revenue Measures held a hearing on Banking Secrecy Practices and Wealthy American Taxpayers. The hearing focused on withholding on U.S. source investment earnings received by foreign persons, the Qualified Intermediary (QI) program, tax treaties, and the amount and causes of non-compliance.

In his opening remarks, ranking member Pat Tieberi (R-Ohio) reminded everyone that tax evasion is a federal crime. Conviction on a federal tax evasion charge can lead to prison time. (Witness this week's sentencing of former KPMG partners involved in an abusive offshore tax avoidance scheme to terms up to 10-1/2 years.) Beyond a general agreement that crime is bad, there were no obvious signs of bipartisan consensus at the hearing.

IRS Commissioner Douglas Shulman testified that offshore tax evasion has the "unprecedented focus of the IRS" and that "pressure will only increase." He noted that the IRS last week, in advice to its examiners, set guidelines for penalties and interest for taxpayers that voluntarily disclose their offshore transactions. He said these guidelines will give taxpayers some certainty about what penalties they face. Shulman encouraged them to come clean before the IRS has them in its sights. If they don't, the penalties they face will be much higher.

Bob McIntyre, Director of CTJ and Michael McIntyre, a law professor at Wayne State University submitted written testimony for the record. They noted three important ways that wealthy Americans evade taxes on their investment income:
1) transferring assets to offshore tax havens with bank secrecy laws (avoiding IRS detection);
2) fraudulently taking advantage of the exemption for portfolio interest paid to foreign persons; and
3) posing as foreign persons and taking advantage of U.S. income tax treaties.

The written testimony explores these problems, explaining how taxpayers are evading tax, and suggested several alternative solutions for addressing each one.

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