US tax authority to target offshore banks in new crackdown on evasion

PUBLISHED : Sunday, 12 June, 2011, 12:00am
UPDATED : Sunday, 12 June, 2011, 12:00am


The US Internal Revenue Service (IRS) plans to move against 'one or more banks' in its crackdown on offshore tax evasion this summer.

Steven Miller, the IRS deputy commissioner for services and enforcement, said the targeted banks were 'not limited to any geographic locale', and that taxpayers could expect more news 'in a month or so'.

Tax analysts such as Kurt Rademacher, a director of international tax practice for the US law firm Butler Snow, have earmarked Hong Kong as an IRS target in recent weeks.

Miller's comments come as the IRS is increasing the crackdown and encouraging US taxpayers to come into its voluntary disclosure programme for offshore assets. Miller said the IRS had hundreds of 'quiet' disclosures under review made by taxpayers who filed amended returns and reports of their foreign bank accounts.

In a bid to persuade more Americans living abroad to declare their overdue taxes, the IRS has also loosened regulations for the 2011 voluntary disclosure programme and created some breathing space for US taxpayers in Hong Kong.

The US taxman's amnesty for Americans with undisclosed foreign bank accounts is geared to attract thousands into coming clean - and could catch out banks in Hong Kong that have helped clients hide their wealth from Uncle Sam.

Already, financial institutions in Asia may be facing punitive action as a result of the first such amnesty, launched two years ago.

The 2009 amnesty led 15,000 taxpayers to make voluntary disclosures to the IRS involving bank accounts they held in more than 60 countries. Since that programme closed, another 3,000 individuals made voluntary disclosures about foreign bank accounts.

Despite these positive results, however, the IRS last week added some sweeteners to the 2011 programme to try to encourage more US taxpayers to come clean. There are three new amendments: a reduction of the so-called 'highest account balance' or 'in lieu of'' penalty from 25 per cent to 5 per cent is now available for certain individuals living outside of the US; an acknowledgment that in some cases the 'preferred approach' may be for participants to 'opt out' of the 2011 amnesty so as to achieve a lower penalty outside of the programme; and an option for participants to request an extension of up to 90 days from the original August 31 deadline to meet their filing requirements under the programme.

Jay Krause, partner at international law firm Withers, said the 2009 voluntary disclosure programme was far more successful than the IRS had expected, so there was every reason to believe the 2011 programme would be equally successful. He believed there were other reasons the IRS decided to add these other sweeteners.

'Improvements to the programme are a direct response to a certain lack of flexibility in the 2011 programme that tax lawyers have repeatedly brought to the attention of the IRS,' Krause said.

'The new reduced penalty and opt-out procedures will, in many instances, produce a much fairer result for US taxpayers living outside of the US.'


The is the amount, in US dollars, Swiss bank UBS paid US authorities to avoid prosecution for aiding tax evaders in 2009