Senate says tax cheating by super rich out of control

August 1, 2006 Tax Cheats Called Out of Control By DAVID CAY JOHNSTON So many superrich Americans evade taxes using offshore accounts that lawenforcement cannot control the growing misconduct, according to a (US) Senate report that provides the most detailed look ever at high-level tax schemes. Cheating now equals about 7 cents out of each dollar paid by honesttaxpayers, as much as $70 billion a year, the report estimated. “The universe of offshore tax cheating has become so large that no one, not even the United States government, could go after all of it,” said Senator Carl Levin, the Michigan Democrat whose staff ran the investigation. ...The report details how, ...a tax shelter” using $9.6 billion “worth of fake securities transactions that were used to generate billions of dollars of fake capital losses.” ...Senator Levin said that when investigators asked for trading records they were first told the trades were private, over-the-counter transactions. He said investigators asked for trading tickets or other evidence of who owned the $9.6 billion worth of stock and were told the stocks were never owned by the parties involved. ...“They just wrote down numbers on paper and claimed losses,” he said. “It was just like fantasy baseball, except the taxes not paid were for real.” ...The investigation, which took 18 months, involved 74 subpoenas, 80 interviews and the collection of more than two million documents, and yet Senator Levin said “the six cases we present are just examples, just apinhole look.” The 400-page report recommends eight changes, some of them aimed at going after the law and accounting firms, banks and investment advisers that the report says enable tax schemes that rely on complexity, secrecy and compartmentalizing information so that advisers can claim they had no idea that the overall transaction was a fraud. “We need to significantly strengthen the aiding and abetting statutes to get at the lawyers and accountants and other advisers who enable this cheating,”Senator Levin said, adding that “we need major changes in law to stop the use of tax havens” by tax cheats. It also recommends new rules that strip away the underlying legal presumptions that make offshore tax havens like the Cayman Islands, Nevis, the Isle of Man and Panama attractive places for Americans to hide assets and income from the Internal Revenue Service. ...Senator Levin said the law “should assume that any transaction in a tax haven is a sham.” He said that during the investigation he grew angry as he learned how common cheating had become and how existing government rules aided tax cheats. He said that complex schemes were broken into discrete pieces, allowing professional advisers working on each piece to assert that they had no idea that, taken as a whole, a scheme was improper. “I get incensed by people who use tax havens to not pay their taxes while the average guy has to pay his taxes because they are taken out of his pay before he gets it,” he said. ...The technique involved a complex set of circular transactions using what the Senate report characterized as sham corporations in the Isle of Man with shell corporations given names like Jackstones. Their ownership was kept secret. “Ain’t capitalism great!” ... an e-mail message extolling the tax benefits of the deal. The report says that Credit Suisse First Boston, Lehman Brothers and Bank of America “all knew that the offshore entities” for which they made trades were associated ... but ignored rules requiring disclosure of these transactions and helped them hide the true ownership of the assets. ...(They)“ were counseled by an armada of lawyers, brokers, financial professionals and offshore service providers. 1392 word version