Kevin E. Packman is a Partner in our Miami office

Today, February 26, 2014, the Senate Permanent Subcommittee on Investigations will hold a hearing on offshore tax evasion titled "Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts." Prior to the hearing, the Subcommittee released this report pursuant to the hearing.1

When Senator Carl Levin, the Subcommittee's Chairman announced the hearing on February 19, 2014, he stated that "the hearing will continue the Subcommittee's examination of tax haven bank facilitation of U.S. tax evasion, focusing on the status of efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on billions of dollars in hidden assets."2

The media has indicated that the hearing will address the stalled criminal investigation into 14 Swiss banks, and include witnesses from a Swiss bank and the Department of Justice.3 Furthermore, the February 24 Bloomberg BNA Daily Tax Report reflected that the following speakers will testify at the hearing:  Credit Suisse Group AG Chief Executive Officer Brady Dougan, Hans-Ulrich Meister and Robert Shafir, the co-heads of Credit Suisse's Swiss private banking and wealth management, and Romeo Cerutti, the bank's general counsel.  They will be joined by United States Deputy Attorney General James Cole and Assistant Attorney General Kathryn Keneally from the Justice Department.4

Coincidentally, the US Government Accountability Office ("GAO") issued a report on the same day that the hearing was announced that analyzed 12,889 FBARs filed to report foreign accounts held in 2008.  These FBARs were filed by participants in the 2009 offshore voluntary disclosure program.5 The report identifies the countries in which the foreign bank accounts reported on the FBARs were located as well as the states where the account holders reside.

When discussing the location of the foreign bank accounts, the GAO report stated:  "[c]onsistent with IRS's enforcement efforts and the design of the 2009 OVDP, we found that the population of participants was more likely to report offshore accounts in Switzerland than other locations. Note that each FBAR could report multiple financial accounts and multiple financial institution mailing addresses. In our review of a sample of 2009 OVDP case files, we found that some participants disclosed dozens of offshore accounts with multiple banks and in multiple countries; in other cases, participants disclosed only one account. When reporting the geographic distribution of offshore accounts, we counted the number of FBARs in which a specific country/territory code appeared at least once."

As the GAO noted, 42% of the accounts reported on the 2008 FBARs studied (or 5,427 accounts) were held in Switzerland; 8% were held in the United Kingdom (or 1,058 accounts); 4% were held in Canada, France, Israel and Germany with 556, 528, 510 and 484 accounts reported respectively.

When discussing the state of residence, the GAO report indicates that its findings could be skewed by the fact that the address reflected on an FBAR may not belong to the participant, but rather the participant's accountant or attorney. Notwithstanding, it noted that the states with the largest percentage of participants also happened to be states where taxpayers generally receive higher incomes than the average.  24% of the FBARs filed in the 2009 voluntary disclosure program for 2008 accounts were filed by participants residing in Californiaw (2,524).  18% of the filed FBARs reflected New York addresses (1,844), followed by Florida which had 10% (1,022) and Texas, which had 5% (512).  It is interesting to note that these four states also have rather large immigrant populations. These individuals may, in fact, continue to have ties to their country of origin and continue to hold accounts that were opened well before coming to the United States.   The fact that for many Switzerland was the preferred country should be no surprise, since having wealth in many parts of the world is dangerous, and Switzerland would naturally be a safe haven.

According to its website, the GAO "the audit, evaluation, and investigative arm of Congress" and "exists to support Congress in meeting its constitutional responsibilities and to help improve the performance and accountability of the federal government for the American people."

GAO conducted this study in response to a request from Senator Levin's Subcommittee to update its March 2013 report where it chastised the IRS for not pursuing taxpayers who filed quiet disclosures.  The earlier GAO report noted that the success of the IRS voluntary disclosure program was premised upon taxpayers utilizing it, and if other taxpayers could file quiet disclosures and avoid penalties, then the disclosure programs would become useless.6

Footnotes

1 Senate Permanent Subcommittee on Investigations Report 2 http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-tax-evasion-the-effort-to-collect-unpaid-taxes-on-billions-in-hidden-offshore-accounts
3 http://www.bloomberg.com/news/2014-02-19/offshore-tax-evasion-will-be-focus-of-senate-hearing.html; http://www.accountingtoday.com/news/Offshore-Tax-Evasion-Crackdown-Focus-Senate-Hearing-69656-1.html
4  http://www.bloomberg.com/news/2014-02-24/credit-suisse-s-dougan-to-testify-at-senate-tax-hearing.html
5 http://www.gao.gov/assets/670/660005.pdf
6 http://www.gao.gov/assets/660/653369.pdf

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