Politics & Finances

U.S. Senate Officially Addresses "Billionaire Tax Evasion Scheme" In 23-Page Report

U.S. Senate Officially Addresses "Billionaire Tax Evasion Scheme" In 23-Page Report

The United States Senate has officially addressed the shell bank loophole, a "billionaire tax evasion scheme" that is impacting all American taxpayers.

In an official report entitled simply, "The Shell Bank Loophole," the Senate Finance Committee has determined that a "billionaire tax evasion scheme exposes how weak enforcement of the Foreign Account Tax Compliance Act enables wealthy tax cheats to hide income offshore."

The 23-page document outlines specifically situations, such as former CEO Robert Brockman's tax evasion scheme -- the largest in United States history -- that was set to go to trial this year, before legal proceedings were halted due to the 81-year-old's death earlier this month. 

The Senate panel shares that Switzerland and the Cayman Islands were Brockman's preferred havens, noting that Vista Equity Partners -- who intriguingly recently acquired tax compliance software, Avalara, for $84 billion -- played a key role in many of the billionaire tax evader's dubious wire transfers. 

The Senate Finance Committee provided a helpful "Cheat Sheet" for how it is possible to turn a shell company into an IRS-approved shell bank. You can view both the process and the results below:

The key steps:

1. Establish a shell company in a FATCA partner jurisdiction (even those in well -known tax haven jurisdictions such as Bermuda or the British Virgin Islands)

2. Fill out form 8957 with the IRS to register the shell company as a foreign financial institution and obtain a GIIN number.

3. Open account at a bank in Switzerland or other FATCA partner jurisdiction in the name of the shell company now registered as a financial institution. Use an attorney or other intermediary as the signatory of the account.

4. Invest in private equity firms or other investment vehicles and direct the fund manager to wire proceeds from investment activities in U.S. to the shell company’s account in Switzerland or elsewhere.

The results:

• The Swiss bank is no longer required to report that the account is held by U.S. persons because the account is held in the name of an entity with a valid GIIN number. The Swiss bank is also no longer required to conduct due diligence to determine whether the account has a U.S. nexus.

• The shell company is now operating as a “shell bank” and can self-certify reporting offshore accounts to IRS for FATCA purposes.

• In the absence of an audit or other federal investigation, is it highly unlikely the IRS will detect whether these accounts are concealing or underreporting assets held by U.S. persons.

At this time, it is not known what specific legislation may be introduced to halt this problem, which the Congressional panel referred to as a "shockingly easy" way for the immensely wealthy to avoid paying taxes on billions of dollars. 

Included in the Inflation Reduction Act of 2022 was a provision for an additional $80 billion in funding for the Internal Revenue Service (IRS). As the IRS prepares for a major revamp that will see the agency target white collar tax evaders, this new report is sure to have a massive impact. 

What do you think about the shell bank loophole?

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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