Offshore Tax Havens Cost U.S. Up to $70B

WASHINGTON -- Offshore tax havens used by the wealthy cost U.S. taxpayers $40 billion to $70 billion a year and should be shut down, a Senate panel said in a report naming specific wealthy people as tax haven abusers, according to Reuters.

In a new report issued Monday, the Senate Permanent Subcommittee on Investigations named individuals, including New York health care heir Robert Wood Johnson IV, Hollywood media mogul Haim Saban and Texas' Wyly brothers, as haven abusers, Reuters reported.

The subcommittee report said that Johnson, Saban and three other, unnamed taxpayers, purchased a tax shelter known as the Personally Optimized Investment Transaction, or POINT, from Quellos Group, a Seattle-based investment firm, according to Reuters.

The report said POINT shelters were used to "erase over $2 billion in capital gains that would otherwise have been taxed, costing the U.S. Treasury lost revenue of about $300 million." The report said law firms such as Bryan Cave and Cravath Swain & Moore worked with Quellos on POINT, while major banks including HSBC provided financing, according to Reuters.

Johnson and Saban, who are portrayed as victims in the report, are scheduled to testify Tuesday before the Senate Permanent Investigations subcommittee. They are expected to say that professional advisers assured them their deals to avoid taxes were more likely lawful than not. The Wyly brothers told the committee that they would invoke their Fifth Amendment right against self-incrimination and thus were not called to testify. The report characterizes them as active participants in tax schemes, The New York Times reported.

The report details how the Quellos Group “concocted a tax shelter” using $9.6 billion “worth of fake securities transactions that were used to generate billions of dollars of fake capital losses,” the paper reported

Quellos, in a statement, said, “we fundamentally disagree with the report, which presents a one-sided view.” It said the transactions, which the Senate committee describes as fabrications, were real and involved “a significant possibility of economic gain and loss, according to the paper”

The 400-page report recommends eight changes, some of them aimed at going after the law and accounting firms, banks and investment advisers that the report says enable tax schemes that rely on complexity, secrecy and compartmentalizing information so that advisers can claim they had no idea that the overall transaction was a fraud, the paper reported.

It also recommends new rules that strip away the underlying legal presumptions that make offshore tax havens like the Cayman Islands, Nevis, the Isle of Man and Panama attractive places for Americans to hide assets and income from the Internal Revenue Service, the paper reported.

-- NYSSCPA.org News Staff

Posted on 8/1/06