U.S. Congress Focuses on Offshore Abusive Tax Schemes

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Saturday, June 1, 2002
Bruce Zagaris
On April 11, 2002, the Senate Finance Committee held a hearing to discuss the Internal Revenue Service’s efforts to identify and combat actively promoted tax schemes, including the offshore ones. Charles O. Rossotti, the Commissioner of International Revenue, testified about schemes to hide income using trusts and offshore bank accounts. In the past few years the IRS has detected a proliferation of schemes designed to permit upper income taxpayers to hide income. Of the various taxpayer schemes, the use of trusts offshore bank accounts is the largest in loss of revenue to the Treasury, the hardest to detect, and the most insidious in undermining the fairness of the tax professionals, such as athletes, actors, physicians, lawyers, authors, business owners, and law professors. A network of promoters and sub-promoters, who may charge $ 5,000 to $70,000 for their packages, often market these schemes. Whiles the promoters use abusive trusts today as a dominant aspect of the schemes, the promoters are extremely creative and will use other vehicle, such as partnerships, to try to disguise their illegal activities. Foreign packages using offshore trusts and bank accounts usually start with an asset management company (a business trust) and distribute income to several trust lawyers. These foreign promoters also try to take funds offshore and outside U.S. jurisdiction. The schemes utilize offshore bank accounts, trusts, and international business corporations (IBC’s) established in offshore financial centers.