Financial Transparency Coalition

The Government Accountability Office (GAO) in the United States is one of the primary research arms of the federal government. It publishes reports, often at the request of Congress, to help answer questions related to important policy. Congressed asked the GAO to evaluate the IRS’s effort to clamp down on offshore tax evasion, and the GAO responded with a surprisingly insightful report.

After a whistleblower revealed that billions of dollars in tax evasion were being facilitated by the Swiss Bank UBS in 2009, the IRS launched a voluntary disclosure program to try and recover some of the money. After several extensions, the result has been $5.5 billion recovered by the U.S. treasury. At first glance, this is a lot of money, but the GAO thinks that offshore account holders could be evading tax through “quiet disclosure”:

Since 2003, IRS has carried out four offshore voluntary disclosure programs, collectively referred to in this report as “offshore programs,” that offer incentives for taxpayers to disclose their offshore accounts and pay delinquent taxes, interest, and penalties. Generally, the programs offered somewhat reduced penalties and no risk of criminal prosecution if eligible taxpayers fully disclosed their previously unreported offshore accounts and paid taxes due plus interest. As of December 2012, these offshore programs have resulted in more than 39,000 disclosures and over $5.5 billion in revenues.

Some taxpayers with unreported foreign accounts may have chosen not to participate in one of IRS’s offshore programs, and attempted to circumvent some taxes, interest, and penalties owed. One technique, which IRS calls a “quiet disclosure,” is to file amended tax returns that report offshore income from prior years. Another technique is for taxpayers to declare existing offshore accounts for the first time with their current year’s tax return, but not amend prior year returns. If successful, these techniques result in lost revenue for the Treasury, and undermine the offshore programs’ fairness and effectiveness.

All the more reason to push forward at the G8 this year on automatic exchange of tax information, so the IRS doesn’t have to wait for people to tell them about their Swiss bank accounts before trying see if they paid their taxes. You can read the full report here. (PDF)