Rich Americans hide "billions" offshore thanks to tax loophole, Senate panel finds
A gaping hole in U.S. tax laws is allowing the rich to stash billions offshore in foreign bank accounts, according to lawmakers.
While the law requires Americans to report any foreign bank accounts and pay taxes on all income earned, not all of them do, and a 12-year-old law designed to crack down on offshore tax evasion is easy to circumvent, members of the Senate Finance Committee said in a report on Wednesday.
"As a result, wealthy taxpayers continue to use schemes involving offshore entities and secret bank accounts to successfully hide billions in income from the IRS," the report said.
The case of Robert Brockman, a billionaire charged in the largest tax evasion case in history, highlights how loopholes in the nation's tax code may be used to dodge taxes. In 2020, the Department of Justice charged Brockman with hiding more than $2 billion in income from the IRS in a complex, decades-long scheme involving offshore accounts, foreign trusts and multiple shell companies.
Brockman died earlier this month while preparing to stand trial; his case was the impetus for the Senate Finance investigation. A civil case against his estate is ongoing.
Brockman's attorneys, who didn't immediately reply to a request for comment from CBS News, had argued he was too ill to stand trial. Upon his death, Kathy Keneally of Jones Day told Bloomberg, "the government wasted time and resources indicting a man who had progressive dementia and was terminally ill."
"Shockingly easy"
One way Brockman was allegedly able to hide income is by dressing up his shell companies as financial institutions, according to the report, which cites documents from the court case. Under the 2010 Foreign Account Tax Compliance Act, or FATCA, foreign financial institutions are required to determine if certain accounts are held by U.S. citizens. But banks are free of that legal responsibility if the accounts are held by entities that are themselves financial institutions.
Brockman allegedly took advantage of this loophole, according to lawmakers. Companies that he controlled and that were registered under other people's names were also registered with the IRS and received Global Intermediary Identification Numbers (GIIN numbers), allowing them to present themselves as foreign financial institutions.
That means when money funneled through these companies was deposited into Swiss bank accounts, the Swiss banks did not need to investigate whether a U.S. citizen held the account, as they would normally have to do.
What's more, getting a GIIN number from the IRS is "shockingly easy," the report found. After a person registers online or via a paper form, applications "are almost always approved without meaningful investigation or due diligence from IRS personnel," the Senate panel found.
Essentially, Brockman was allowed to give himself a free pass and "self-certify" that his accounts were legal, and neither the IRS nor the Swiss banks investigated further, the report alleges, revealing a "deeply troubling loophole in the U.S. financial reporting regime."
"Banks" with no scrutiny
Brockman's alleged tax evasion is likely just the tip of the iceberg, the committee found. The Cayman Islands alone have 84,000 entities with GIIN numbers, meaning they are identified as foreign financial institutions.
"There are hundreds of thousands of shell companies in offshore tax havens that have been turned into IRS-approved banks with virtually no scrutiny by the IRS. It doesn't take a rocket scientist to see how this loophole leads to billions in tax evasion," Senator Ron Wyden, chairman of the Senate Finance Committee, said in a statement.
Budget cuts at the IRS have made it harder for the agency to crack down on wealthy tax cheats. SInce 2010, the number of enforcement staffers at the agency has fallen by nearly a third. That means less revenue for everything from military spending to social programs, with an estimated $600 billion in owed taxes going uncollected each year, according to the Treasury Department.
"The IRS is completely outgunned when it comes to these offshore shell banks," Ashley Schapitl, a spokesperson for Wyden, said on Twitter.
An $80 billion boost for the agency in the recently passed Inflation Reduction Act should make up some of this gap, Wyden said. The senator is also pushing a law targeting the foreign-reporting loophole, he said.