howie-copywriter writes " There has been a downturn in the tax shelter business, while accountant firms, lawyers and investment houses check what is legal and what is not. The KPMG accountant firm copped a plea and agreed to pay $456 million in fines. They are afraid of not only criminal charges, but lawsuits from clients who are forced to pay back taxes and penalties because of illegitimate tax shelters.
In the KPMG case, several tax evasion schemes were mass marketed to wealthy clients. The tax shelters included BLIPS- Bond Linked Investment Issue Premium Structures. Almost two hundred individuals used this scheme to evade over $5 Billion in taxes. The individual borrowed from a bank offshore, and was given a premium for agreeing to pay at a very high interest rate. His broker would use the money to speculate in different currencies for a couple of months. Then, even though the individual had arranged a 7-year loan, he would cash in the loan after the two months, and pay a very high penalty for early payment. Therefore he would create a large loss, which in reality was offset by the initial “premium”. The government argued that this was a totally sham tax loss that was then used to deduct from the individuals capital gains, resulting in a large reduction in capital gains and other taxes.
KPMG is an especially big target, being one of the four biggest U.S. accountant firms. They pled guilty and paid the fines to avoid being broken up like the late Arthur Andersen firm over the Enron Corporation’s use of off-shore shell companies. This was a policy to create a fraudulent accountant statement for Enron, carried out by Arthur Anderson Corp.
Senator Grassley (Iowa) has been pushing to change the law to make tax shelters criminal that have no (profitable) economic purpose. That is the IRS’s internal criteria for tax shelters, but law makers and the Administration have been resisting making this law.
Even if large accountant firms and law firms are deterred from trying out similar tax evasion schemes, small boutique-type firms will continue to set up tax shelters for their rich clients and making 5-10% of the taxes reduced as their hefty fees. They will hope that their schemes, even if illegal will fall under the scrutiny of the overwhelmed IRS staff.
A report on these tax evasion scams and how they are ripping off the U.S. Treasury has been issued by Senators Levin (Michigan) and Sen. Norm Coleman, and is a bipartisan do*****ent. They are interested if the IRS could track those tax evaders by making a “presumption of control”, in the case of Americans who regularly send large amounts of cash to foreign off-shore corporations. There is also a list of countries and territories which have been designated as tax evasion havens. This could be a problem because in some island paradises, even the names of the owners of corporations are not listed!
A pending regulation of the US Treasury can be used to deal with foreign-based hedge funds, affiliated with U.S. based Hedge Funds to report suspicious transactions to US authorities.
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