Tax & Budget Policy News

WASHINGTON, Nov. 5 –Legislation that would crack down on tax compliance for Americans using foreign bank accounts is being considered by the House of Representatives. This is a step in the right direction, but additional reforms – ones that also address corporate tax haven abuse – are needed.

The House Ways and Means Subcommittee on Select Revenue Measures discusses the Foreign Account Tax Compliance Act of 2009, H.R. 3933, as well as other tax reporting and compliance issues, at a hearing today.

U.S. PIRG reports that U.S. taxpayers pick up the tab for these abusers – as much as $100 billion per year – and strongly supports any steps taken to correct that injustice. The language of H.R. 3933 as it stands today leaves out reforms for corporations, which U.S. PIRG contends should be held accountable for their use of tax havens. Representative Lloyd Doggett (D-TX), who has introduced legislation that goes after corporations as well as individual tax haven abusers, commented in the hearing that there “should not be one rule for Wall Street and one rule for individuals.”  He blamed powerful corporate and bank lobbyists for helping their clients to escape any real reforms.

In written testimony submitted by the U.S. Public Interest Research Group on Thursday, Tax and Budget Reform Advocate Nicole Tichon listed these reforms the consumer group would like to see included.

Below are excerpts from her testimony. To download the full testimony, click here.

"Even as many American families are struggling to make ends meet and businesses are fighting to keep their doors open, Main Street still manages to pay their taxes.

"Taxpayers have also made an unprecedented investment in the banking, auto and insurance industries. These industries have made increasing use of complex schemes to avoid paying their own taxes.”

Key recommendations from testimony:

The Foreign Account Tax Compliance Act is a step in the right direction, but the bill leaves out some key reforms: 

1. Address the Offshore Shell Companies and Collect Taxes.  Companies that exist only on paper or via a Post Office box in the Cayman Islands – but take advantage of American markets, have access to our consumer base, use our physical and financial infrastructure and are protected by the U.S. military – should pay U.S. taxes. 

2. Codify the Economic Substance Doctrine.  The bill should change the IRS code to ensure that a transaction has a purpose aside from reduction of tax liability in order to be considered valid. This covers any tax avoidance scheme into the future – which is a critical tool for law enforcement.

3. Repeal ‘Check the Box.’  A provision should be added to keep companies from being able to simply check a box on a form to determine their business entity classification (to be most advantageous based on their location and tax treatment). This loophole has been abused in order to have the advantages and protections associated with incorporation, but not have to be taxed as such. 

4. Ban Tax Strategy Patents.  Our government should not be in the business of rewarding tax lawyers who help clients dodge their taxes.  There is no patent protection for finding new ways to steal cars, and there shouldn’t be protection for finding new ways to dodge taxes. These patents pose a significant threat to taxpayers and their advisors.

By taking on this issue in a serious way Congress can demonstrate that it puts taxpayers first. 

Tax haven abuse is only legal because the law has not caught up to reality. It used to be legal to use other people’s credit card numbers, dump raw sewage in rivers, and import radioactive materials – until we updated laws to stop it.”

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U.S. PIRG, the federation of state Public Interest Research Groups, is a non-profit, non-partisan public interest advocacy organization.
For more information on U.S. PIRG’s campaign to Close Corporate Tax Loopholes, click here.

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USPIRG_Testimony_TaxBill_Nov5_09.pdf