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Tuesday, 26 March, 2002, 18:40 GMT
US tax chiefs target offshore accounts
The Internal Revenue Service building in Washington, DC
The IRS says offshore tax evasion is widespread
The US taxing authority, the Internal Revenue Service, has unveiled plans to crackdown on millions of Americans believed to be avoiding income taxes by hiding money in offshore bank accounts.

The announcement, made by IRS commissioner Charles Rossotti, is yet one more indication the agency is beefing up auditing duties curtailed during the time of Bill Clinton's presidency.


It has been very difficult for the IRS to trace these transactions back to the taxpayer

IRS Commissioner Charles Rossotti

The IRS said it suspected some US citizens of sheltering money in credit-card accounts held abroad in places such as Caribbean islands, Hong Kong and Switzerland.

Citizens then use credit or debit cards to access cash to purchase items ranging from groceries and petrol to boats and cars, Mr Rossotti said in a written statement.

"For years, people assumed we wouldn't be able to find them," he said.

"Now, we have a way."

Paper trail

While it is not illegal to have an offshore credit card, foreign-based accounts can make it easier for individuals to avoid paying taxes.

IRS commissioner Charles Rossotti
Charles Rossotti: "Now, we have a way"

"Since these cards are issued from banks located in tax-haven countries, it has been very difficult for the IRS to trace these transactions back to the taxpayer," Mr Rossotti said.

Normally, cash withdrawals from offshore banks, because of secrecy laws, produce no paper trails.

In a challenge to such laws, the IRS went to federal court in Miami in October 2000 and won limited access to credit-card transactions from banks in Antigua, Barbuda, the Bahamas and the Cayman Islands.

The IRS subsequently issued so-called John Doe summonses to credit-card firms American Express and MasterCard, permitting tax inspectors to view limited financial-transaction information.

In response, MasterCard supplied the IRS with a file containing more than 1.7 million transactions involving 230,000 different accounts.

American Express has agreed to turn over similar records.

"We are pleased with the information the IRS has received from MasterCard, and look forward to the information American Express has agreed to provide," said Eileen O'Connor, assistant attorney general for the Justice Department's Tax Division.

In a similar move on Monday, the IRS petitioned the US District Court in San Francisco for permission to serve a John Doe summons on Visa International.

The IRS hopes to access transactions using credit cards issued in more than 20 tax-haven countries.

Seeking wealth clients

The IRS said it had used the data gained from MasterCard to identify hundreds of cases for civil audits, and potentially for criminal investigation.

If the information is representative of the industry, there could be as many as 1-2 million Americans who access offshore accounts with either credit or debit cards, the IRS said.

That is far more than the 170,000 offshore bank accounts reported in 2000 on IRS forms that disclose a taxpayer's interest in foreign financial accounts.

Offshore accounts are an attractive choice for wealthy Americans, including business owners, celebrities and investors who, unlike salaried and hourly workers, do not pay taxes through traditional payroll deduction.

The richest 1% of taxpayers in the US are prime targets for solicitation by financial-services firms that maintain offshore operations.

According to an affidavit obtained by the New York Times, companies such as accounting firm KPMG and banks such as Barclays, HSBC and Royal Bank of Canada were among those identified in court papers.

Some estimates put the loss to the US Treasury at up to $70bn (49bn).

See also:

28 Nov 01 | Business
Americans poised for tax holiday
20 Mar 02 | Business
US falls into the red in February
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