IRS Targets Tax Havens

Last updated on September 25, 2013

Even though the IRS has identified small businesses and sole proprietorships as the biggest contributors to tax evasion, unaccounted income and assets in tax havens are another major form of tax evasion that the IRS has started to curb.

Many large multi-national corporations and wealthy taxpayers have been using tax havens to illegally and legally avoid paying taxes in the U.S. The exploitation of loopholes within the tax code to legally evade taxes is a popular method many use to evade taxes.

To limit tax evasion the Foreign Account Tax Compliance Act (FATCA) was enacted in 2010. Under it, U.S. taxpayers living abroad are required to disclose their income and assets in overseas banks to the IRS if it crosses a specified threshold. The law also requires financial institutions to keep the financial transactions with U.S. taxpayers transparent.

Along with FATCA, the IRS has also been running the Offshore Voluntary Disclosure Program (OVDP), giving taxpayers the opportunity to disclose undisclosed income and assets to the IRS while avoiding severe punishment.

Switzerland, known for years as a foreign country that helps facilitate tax evasion, has signed an agreement with the U.S. under FATCA allowing more transparency in its financial transactions with American citizens.

Continuous and strict implementation of FATCA has now made it difficult for taxpayers to evade taxes using tax havens overseas. It will help the U.S. Treasury recover billions in lost revenue.