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Stop Tax Haven Abuse Actfrom the International Association of Risk and Compliance Professionals (IARCP)

A BILLTo restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation, and for otherpurposes.Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE;(a) Short Title- This Act may be cited as theStop Tax Haven Abuse Act.TITLE I--DETERRING THE USE OF TAX HAVENS FOR TAX EVASION

Sec. 101. Establishing presumptions for entities and transactions involving offshore secrecy jurisdictions.

Sec. 102. Authorizing special measures against foreign jurisdictions, financial institutions, and others that impede UnitedStates tax enforcement.

Sec. 103. Treatment of foreign corporations managed and controlled in the United States as domestic corporations.

Sec. 104. Allowing more time for investigations involving offshore secrecy jurisdictions.

Sec. 105. Reporting United States beneficial owners of foreign owned financial accounts.

Sec. 106. Preventing misuse of foreign trusts for tax evasion.

Sec. 107. Limitation on legal opinion protection from penalties with respect to transactions involving offshore secrecyjurisdictions.

Sec. 108. Closing the offshore dividend tax loophole.

Sec. 109. Reporting of activities with respect to passive foreign investment companies.

TITLE II--OTHER MEASURES TO COMBAT TAX HAVEN AND TAX SHELTER ABUSES


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Sec. 201. Penalty for failing to disclose offshore holdings.

Sec. 202. Deadline for anti-money laundering rule for hedge funds and private equity funds.

Sec. 203. Anti-money laundering requirements for formation agents.

Sec. 204. Strengthening summons in cases involving offshore secrecy jurisdictions.

Sec. 205. Improving enforcement of foreign financial account reporting.

TITLE III--COMBATING TAX SHELTER PROMOTERS

Sec. 301. Penalty for promoting abusive tax shelters.

Sec. 302. Penalty for aiding and abetting the understatement of tax liability.

Sec. 303. Tax planning inventions not patentable.

Sec. 304. Prohibited fee arrangement.

Sec. 305. Preventing tax shelter activities by financial institutions.

Sec. 306. Information sharing for enforcement purposes.

Sec. 307. Disclosure of information to Congress.

Sec. 308. Tax opinion standards for tax practitioners.

Sec. 309. Denial of deduction for certain fines, penalties, and other amounts.

TITLE IV--REQUIRING ECONOMIC SUBSTANCE

Sec. 401. Clarification of economic substance doctrine.

Sec. 402. Penalty for understatements attributable to transactions lacking economic substance, etc.

Sec. 403. Denial of deduction for interest on underpayments attributable to noneconomic substance transactions.

March 17, 2009

Statement of Senator Carl Levin Before Senate Finance Committee Hearing on Tax IssuesRelated to Ponzi Schemes and an Update on Offshore Tax Haven Legislation

"Scope of the Problem

Each year, the United States loses an estimated $100 billion from U.S. taxpayers using offshore tax schemes to dodtheir U.S. tax obligations. Those offshore shenanigans cheat honest U.S. taxpayers who pay their fair share and robthe U.S. Treasury of funds needed for the operations of our government.


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The Permanent Subcommittee on Investigations, which I chair, has dedicated significant effort to combating offshtax abuse. Weve exposed some of the facilitators the lawyers, accountants, broker-dealers, company formationagents, trust administrators, and others that help clients dodge their U.S. tax obligations.

Weve exposed some of the schemes, such as mass marketed tax shelters peddled as investment strategies, networkof offshore trusts and corporations with hidden assets, and deceptive offshore transactions used to recast taxableincome as allegedly tax free payments.

Here are just a few of the examples offshore tax abuse uncovered by the Subcommittee:

Enron, with its 440 plus shell corporations in the Cayman Islands;KPMG, which sold the abusive FLIP and OPIS tax shelters employing shell Cayman Island corporations as part ofscheme to generate phony losses;Two Americans who transferred over $190 million in stock options to 58 offshore trusts and corporations, which thesecretly controlled, and which they used to enjoy over $700 million in offshore profits, while paying no taxes on thaincome; andA U.S. tax shelter promoter that relied on $9.6 billion worth of phantom stock trades between two offshore shellcompanies to generate fake stock losses which were then used to shelter billions in income for six U.S. taxpayers.Offshore banks in tax havens that used code names, subterfuge, and shell companies to help Americans hide billioof dollars from the Treasury.

The hallmark of all these schemes is the use of offshore jurisdictions that make it difficult, if not impossible for theIRS to find out what the facts really are.

Switzerland and a major Swiss bank UBS provide a timely example. Just last month UBS entered into a deferredprosecution agreement with the Department of Justice in which they admitted to participating in a scheme withcertain U.S. taxpayers to defraud the United States of tax revenue.

UBS agreed to pay a $780 million fine. Now our government is attempting to identify and recover unpaid taxes fromthe tens of thousands of U.S. citizens who hid $18 billion in income and assets in UBS accounts.

UBS has refused to provide us the names of their clients, saying that to do so would violate Swiss law. These actionshow the inadequacies of our tax treaties in protecting U.S. interests.

Stopping Offshore Tax Abuses

Tax havens sell secrecy to attract clients to their shores. They peddle secrecy the way other countries advertise higquality products or services. And though they go to great lengths to justify and defend their practices, that secrecy utilized by thousands of people to cloak tax evasion and other misconduct.

The Stop Tax Haven Abuse Act, S. 506, which I have introduced with Senators Whitehouse, McCaskill, Nelson, Shaheen and as cosponsors, offers a powerful set of tools to stop offshore abuses and put tax dollars in the U.S.Treasury, where they belong.

Our bill would:

ESTABLISH PRESUMPTIONS TO COMBAT OFFSHORE SECRECY (101) by allowing U.S. tax and securitieslaw enforcement to treat for tax purposes non-publicly traded offshore entities as being controlled by the U.S.taxpayer who formed them, sent them assets, received assets from them, or benefited from them, unless the taxpayshows otherwise.

IMPOSE TOUGHER REQUIREMENTS ON U.S. TAXPAYERS USING OFFSHORE SECRECYJURISDICTIONS (101) by authorizing Treasury to develop a list of jurisdictions starting from an initial 34urisdictions identified in IRS court proceedings.


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AUTHORIZE SPECIAL MEASURES TO STOP OFFSHORE TAX ABUSES (102) by giving Treasury authority take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement,including by prohibiting U.S. banks from doing business with them.

CURE THE UGLAND HOUSE PROBLEM OF SHELL COMPANIES RUN FROM THE UNITED STATESCLAIMING FOREIGN STATUS (103) by treating foreign corporations that are managed primarily from the UniStates and are publicly traded or have gross assets of $50 million or more as U.S. domestic corporations for incomepurposes.

STRENGTHEN DETECTION OF OFFSHORE ACTIVITIES (105) by requiring U.S. financial institutions thatopen accounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.Sclients, or establish entities in offshore secrecy jurisdictions for U.S. clients, to report such actions to the IRS.

CLOSE OFFSHORE TRUST LOOPHOLES (106) by taxing distributions, gifts and loans from foreign trusts of restate, artwork, or jewelry to U.S. persons, and treating U.S. persons who receive offshore trust assets as trustbeneficiaries.

CLOSE THE OFFSHORE TAX DIVIDEND LOOPHOLE (108) by treating all U.S. corporate dividend-basedpayments to non-U.S. persons as taxable income subject to withholding.

EXPAND IRS REPORTING REQUIREMENTS (109) for passive foreign investment companies (PFICs) to inclnot only U.S. persons who own a PFIC but also those who have formed, sent assets to, received assets from, or

benefitted from a PFIC.

REQUIRE ANTI-MONEY LAUNDERING PROGRAMS (203) for hedge funds and company formation agents ensure they screen their clients and any offshore funds.

STRENGTHEN PENALTIES (301-302) on persons who aid or abet tax evasion by increasing the maximum finto 150% of their gains, and on corporate insiders who hide offshore stock holdings by increasing the maximum fine$1 million per violation of U.S. securities laws.

BAN TAX SHELTER PATENTS (303) by prohibiting the U.S. patent office from issuing patents for inventionsdesigned to minimize, eliminate, or defer taxes.

These provisions represent a partial list of the innovative measures weve included in the bill to strengthen the abilof federal regulators to combat offshore tax haven and tax shelter abuses.

One bill provision that has already caught the attention of some offshore tax havens is a requirement that theTreasury Department maintain a list of Offshore Secrecy Jurisdictions that have corporate, bank, or tax secrecyrules or industry practices, and a poor record of cooperation with U.S. tax enforcement. S. 506 doesnt attempt to dwhat we dont have the power to do: change any jurisdictions secrecy laws or tax rates.

Instead, the bill aims at making it more difficult for U.S. taxpayers to use offshore secrecy laws and practices to hidessential facts from the IRS. It would greatly strengthen the IRS ability to collect tax dollars hidden offshore.Americans will still be free to utilize banks in tax haven jurisdictions for legitimate purposes, but in a court of law tburden will shift to the taxpayers to prove that they dont control the corporations and trusts theyve established or

financed in those jurisdictions.

Recent Developments

Last week, in response to growing international pressure and spurred in part by the work of my Subcommittee, sevoffshore secrecy jurisdictions, including Andorra, Austria, Belgium, Liechtenstein, Luxembourg, and Switzerland,announced significant changes in how they will apply their bank secrecy laws.

Each of these countries seems to say that it will no longer use secrecy laws to help people evade taxes, and will begexchanging information on all types of alleged tax evasion, not just so-called tax fraud.


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That is a very welcome development which is long overdue, and we look forward to effective implementation of thepromised new policies. Hopefully, dozens of other secrecy jurisdictions which have cost the U.S. Treasury so manybillions of dollars will follow suit.

At the same time, the promised new limits on offshore secrecy will not only likely take years to implement, but eveafter taking effect, will not eliminate all offshore tax abuses. For example, even after implementation of the proposereforms, the IRS will still be at a disadvantage in trying to obtain notice of abusive accounts, the names on thoseaccounts, and in proving beneficial ownership and control of the accounts in court.

Thats why Congress needs to enact the Stop Tax Haven Abuse Act to strengthen U.S. offshore tax enforcement anhelp end offshore abuses that enable U.S. tax cheats to offload their tax burden onto the backs of honest, hardworktaxpayers.

Conclusion

These are exceedingly difficult times. The economy is in turmoil; the unemployment rate is as high as it has been igeneration and rising. Congress just passed an unprecedented stimulus package in order to get the economy back track, but it comes at a significant cost to the Treasury.

Now more than ever, the government needs to collect all of the money it is lawfully owed. Tax cheats make it hardto maintain our highways, protect our borders, advance medical research, and inspect our food.

They make it difficult to give needed tax relief to small businesses and middle-income victims of the alternativeminimum tax. And at a time when the government must borrow hundreds of billions of dollars to shore up ourfinancial system and stimulate our economy, tax cheats deepen the deficit and threaten the economic well-being oour children and grandchildren.

We must vigorously enforce our tax laws. S. 506 offers a set of practical and innovative tools that would help shutdown offshore tax cheats and begin to reduce the $100 billion offshore tax gap that forces honest taxpayers to shoua greater tax burden than they would otherwise have to bear.

I applaud Chairman Baucus and Ranking Member Grassley for their willingness to tackle offshore tax abuses. I looforward to working with the Committee on legislation this year to reduce this unfair drain on our treasury."

INTRODUCED:

March 3, 2009

Statement of Senator Carl Levin on President Obama's Support of Stop Tax Haven Abuse A

Sen. Carl Levin, D-Mich., chairman of the Senate Permanent Subcommittee on Investigations, issued the followingstatement today:

President Obamas support for the Stop Tax Haven Abuse Act, as announced by Treasury Secretary Geithner at aWays and Means Committee hearing today, is very welcome news and greatly improves the chances of an offshore bill becoming law this year.

It also sends a strong signal to tax havens that this Administration is not going to tolerate the kind of offshore taxabuses that have been draining $100 billion a year from the U.S. Treasury and that, as a result, offload the tax burdeonto the backs of honest taxpayers.


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I hope that Secretary Geithner will now add his voice to the chorus of nations calling for action to be taken at the Gmeeting in April to clamp down on offshore secrecy jurisdictions that impede tax enforcement.

From the Act

"Each of the following foreign jurisdictions, which have been previously and publicly identified by the InternalRevenue Service as secrecy jurisdictions in Federal court proceedings, shall be deemed listed by the Secretary as aoffshore secrecy jurisdiction:

`(i) Anguilla.

`(ii) Antigua and Barbuda.

`(iii) Aruba.

`(iv) Bahamas.

`(v) Barbados.

`(vi) Belize.

`(vii) Bermuda.

`(viii) British Virgin Islands.

`(ix) Cayman Islands.

`(x) Cook Islands.

`(xi) Costa Rica.

`(xii) Cyprus.

`(xiii) Dominica.

`(xiv) Gibraltar.

`(xv) Grenada.

`(xvi) Guernsey/Sark/Alderney.

`(xvii) Hong Kong.

`(xviii) Isle of Man.

`(xix) Jersey.

`(xx) Latvia.

`(xxi) Liechtenstein.

`(xxii) Luxembourg.


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`(xxiii) Malta.

`(xxiv) Nauru.

`(xxv) Netherlands Antilles.

`(xxvi) Panama.

`(xxvii) Samoa.

`(xxviii) St. Kitts and Nevis.

`(xxix) St. Lucia.

`(xxx) St. Vincent and the Grenadines.

`(xxxi) Singapore.

`(xxxii) Switzerland.

`(xxxiii) Turks and Caicos.

`(xxxiv) Vanuatu.

March 2, 2009

Senate, House Members Introduce Stop Tax Haven Abuse Act

Stating that tax havens are engaged in economic warfare against the United States, and honest, hardworking

Americans, Sen. Carl Levin, D-Mich., Sen. Sheldon Whitehouse, D-RI, Sen. Claire McCaskill, D-Mo. and Sen. BilNelson, D-Fla., today introduced comprehensive legislation to stop offshore tax haven and tax shelter abuses.

A companion bill was introduced in the U.S. House of Representatives by over 40 Members led by Rep. LloydDoggett, D-Tex. and Rep. Rosa DeLauro, D-Conn.

Offshore tax abuses cost the U.S. Treasury an estimated $100 billion each year in lost tax revenues, including $40-$billion from individuals and $30-$60 billion from corporations. Abusive domestic tax shelters cost tens of billions ofdollars more.

Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system and increasing the tax

burden on middle income families, said Levin, chairman of the Permanent Subcommittee on Investigations whichhas conducted numerous inquiries into offshore abuses.

We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year. We can fightback against secrecy jurisdictions and shut down offshore tax abuses if we have the political will. This bill providespowerful set of new tools to clamp down on offshore tax and tax shelter abuses.

When over 80% of our largest companies have subsidiaries in tax havens, and one major recipient of taxpayer bailmonies achieves a 1% effective tax rate through changes in geographic earnings mix, it is long past time to takeeffective action to stop offshore tax dodging. said Congressman Doggett, a senior member of the House Ways anMeans and Budget Committees, and a long-time foe of offshore tax havens.


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These outrageous tax havens add to the soaring budget deficit and shift the tax burden to small businesses andfamilies, who play by the rules.

The Stop Tax Haven Abuse Act is an improved version of legislation introduced in the last Congress by Levin, SenNorm Coleman, R-Minn., then Sen. Barack Obama, and others in the Senate and by Doggett and over 40 cosponsoin the House, including then Rep. Rahm Emanuel.

The bill has been strengthened with the addition of three new provisions that would:

(1) treat foreign corporations managed and controlled in the United States as domestic corporations for income taxpurposes;

(2) close an offshore tax dividend loophole that enables non-U.S persons to dodge payment of U.S. taxes on U.S. stdividends; and

(3) expand the tax return reporting requirements for passive foreign investment corporations (PFICs) to include Upersons who dont own a PFIC, but have formed, sent assets to, received assets from, or benefitted from a PFIC.

The bill will be referred to the Finance Committee in the Senate and the Ways and Means Committee in the House

Among other measures, the 84-page bill would:

ESTABLISH PRESUMPTIONS TO COMBAT OFFSHORE SECRECY (101) by allowing U.S. tax and securitieslaw enforcement to treat for tax purposes non-publicly traded offshore entities as being controlled by the U.S.taxpayer who formed them, sent them assets, received assets from them, or benefited from them, unless the taxpayproves otherwise.

IMPOSE TOUGHER REQUIREMENTS ON U.S. TAXPAYERS USING OFFSHORE SECRECYJURISDICTIONS (101) by authorizing Treasury to develop a list of jurisdictions starting from an initial 34urisdictions identified in IRS court proceedings.

AUTHORIZE SPECIAL MEASURES TO STOP OFFSHORE TAX ABUSES (102) by giving Treasury authority take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement.

CURE THE UGLAND HOUSE PROBLEM OF SHELL COMPANIES RUN FROM THE UNITED STATESCLAIMING FOREIGN STATUS (103) by treating foreign corporations that are publicly traded or have gross assof $50 million or more and whose management and control occurs primarily in the United States as U.S. domesticcorporations for income tax purposes.

STRENGTHEN DETECTION OF OFFSHORE ACTIVITIES (105) by requiring U.S. financial institutions thatopen accounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.Sclients, or establish entities in offshore secrecy jurisdictions for U.S. clients, to report such actions to the IRS.

CLOSE OFFSHORE TRUST LOOPHOLES (106) by taxing distributions, gifts and loans from foreign trusts of restate, artwork, or jewelry to U.S. persons, and treating U.S. persons who receive offshore trust assets as trustbeneficiaries.

CLOSE THE OFFSHORE TAX DIVIDEND LOOPHOLE (108) by treating all U.S. corporate dividend-basedpayments to non-U.S. persons as taxable income subject to withholding.

EXPAND IRS REPORTING REQUIREMENTS (109) for passive foreign investment companies (PFICs) to inclnot only U.S. persons who own a PFIC but also those who have formed, sent assets to, received assets from, orbenefitted from a PFIC.

REQUIRE ANTI-MONEY LAUNDERING PROGRAMS (203) for hedge funds and company formation agents ensure they screen their clients and any offshore funds.


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STRENGTHEN PENALTIES (301-302) on tax shelter promoters by increasing the maximum fine to 150% of thill-gotten gains, and on corporate insiders who hide offshore stock holdings by increasing the maximum fine to $1million per violation of U.S. securities laws.

BAN TAX SHELTER PATENTS (303) by prohibiting the U.S. patent office from issuing patents for inventionsdesigned to minimize, avoid, or defer taxes.

February 20, 2009

Senator Levin, Reps. DeLauro, Doggett and Levin Urge the Administration to Address TaxHaven Abuse in Budget

In a letter to Office of Management and Budget Director Peter Orszag, U.S. Senator Carl Levin (D-MI) and Reps.Rosa DeLauro (D-CT), Lloyd Doggett (D-TX) and Sander Levin (D-MI) today urged the Obama Administration tinclude measures from the Stop Tax Haven Abuse Act in its upcoming fiscal year 2010 budget proposal in order toprevent taxpayers from hiding their incomes offshore at an annual cost of approximately $100 billion to the federal

government.

The letter cites a recently released Government Accountability Office (GAO) report which found that 83 of the 100largest publicly traded U.S. corporations, including several that are receiving billions of dollars in taxpayer moneythrough the Treasurys financial rescue program, and 63 of the 100 largest U.S. federal contractors reported havingsubsidiaries in tax havens or financial privacy jurisdictions.

The Stop Tax Haven Abuse Act, introduced in the House by Representative Doggett and the Senate by Senator Lelast session (H.R.2136, S.681) and soon to be reintroduced, would deter the use of offshore secrecy jurisdictions,strengthen detection of offshore abuses, increase penalties on tax shelter promoters, close offshore tax loopholes,empower the Treasury Department to act against foreign jurisdictions that impede U.S. tax enforcement, beef-updisclosure of offshore transactions, and prohibit the issuance of tax shelter patents.

We write to express our deep concern with the continued practice by most of the United States largest publiclytraded companies - including many federal contractors and recipients of financial bailout funds - of using offshore havens or financial privacy jurisdictions to avoid paying U.S. taxes, the lawmakers write in the letter.

With estimated annual revenue losses of $100 billion a year as a result of corporations hiding their income offshorwe strongly urge you to consider proposals for shutting down offshore tax abuses as you craft the administrationsproposed fiscal year 2010 budget.

February 17, 2007

Levin, Coleman, Obama Introduce Stop Tax Haven Abuse Act -Bill targets $100 billion in lost tax revenue each year

Sen. Carl Levin, D-Mich., Sen. Norm Coleman, R-Minn., and Sen. Barack Obama, D-Ill., introduced comprehensilegislation to stop offshore tax haven and tax shelter abuses.

For more than four years, Levin and Coleman, the Chairman and senior Republican of the Permanent Subcommitt


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on Investigations, have led an in-depth Subcommittee investigation into offshore tax havens, abusive tax shelters, the professionals who design, market, and implement these tax dodges.

Experts have estimated that the total loss to the Treasury from offshore tax evasion alone approaches $100 billion pyear, including $40 to $70 billion from individuals and another $30 billion from corporations engaging in offshore tevasion. Abusive tax shelters add tens of billions of dollars more.

With a $345 billion annual tax gap and a $248 billion annual deficit, said Levin, we cannot tolerate a $100 billiondrain on our Treasury each year from offshore tax abuses.

We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers. Offshore tax havenhave declared economic war on honest U.S. taxpayers by helping tax cheats hide income and assets that should betaxed in the same way as other Americans.

This bill provides a powerful set of new tools to clamp down on offshore tax and tax shelter abuses.

It is simply unacceptable that some individuals are using offshore tax havens and secrecy jurisdictions to sheltertrillions of dollars in assets from taxation, said Coleman.

These tax schemes cause a massive revenue shortfall and, sadly, it is the honest American taxpayer who must beadisproportionate burden of investing in areas like education and healthcare.

We are introducing this bill to close these loopholes, shut down offshore tax schemes, and ensure that every Ameripays their fair share of taxes.

This is a basic issue of fairness and integrity, said Obama. We need to crack down on individuals and

businesses that abuse our tax laws so that those who work hard and play by the rules arent disadvantage

The Stop Tax Haven Abuse Act is a strengthened version of a tax reform bill that Levin, Coleman, and Obamaintroduced in the last Congress. The legislation was strengthened as a result of a year-long Subcommitteeinvestigation which resulted in a hearing and report on August 1, 2006, examining a series of case studies showinghow U.S. taxpayers are using offshore secrecy jurisdictions to dodge U.S. taxes.

None of these offshore schemes would work, said Levin, without the secrecy that prevents U.S. agencies fromenforcing our laws. Our bill offers innovative ways to combat offshore secrecy. We cant let the offshore tax havenshide $100 billion in U.S. tax revenues which are needed to protect our troops, fund health care and education, andmeet the other needs of American families.

Among other measures, the 68-page bill would:

ESTABLISH PRESUMPTIONS TO COMBAT OFFSHORE SECRECYby allowing U.S. tax and securities lawenforcement to presume that non-publicly traded, offshore corporations and trusts are controlled by the U.S. taxpawho formed them or sent them assets, unless the taxpayer proves otherwise;

IMPOSE TOUGHER REQUIREMENTS ON U.S. TAXPAYERS USING OFFSHORE SECRECY

JURISDICTIONS by listing 34 jurisdictions which have already been named in IRS court filings as probable locatifor U.S. tax evasion;

AUTHORIZE SPECIAL MEASURES TO STOP OFFSHORE TAX ABUSES by giving Treasury authority to takespecial measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement;

STRENGTHEN DETECTION OF OFFSHORE ACTIVITIES by requiring U.S. financial institutions that openaccounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.S. clienor establish entities in offshore secrecy jurisdictions for U.S. clients, to report such actions to the IRS;

CLOSE OFFSHORE TRUST LOOPHOLES by taxing offshore trust income used to buy real estate, artwork and


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ewelry for U.S. persons, and treating as trust beneficiaries those persons who actually receive offshore trust assets;

STRENGTHEN PENALTIES on tax shelter promoters by increasing the maximum fine to 150% of their ill-gottengains, and on corporate insiders who hide offshore stock holdings by increasing the maximum fine on them to $1million per violation of U.S. securities laws;

STOP TAX SHELTER PATENTS by prohibiting the U.S. Patent and Trademark Office from issuing patents forinventions designed to minimize, avoid, defer, or otherwise affect liability for Federal, State, local, or foreign taxand

REQUIRE HEDGE FUNDS AND COMPANY FORMATION AGENTS TO KNOW THEIR OFFSHORECLIENTS by requiring them to establish anti-money laundering programs like other U.S. financial institutions, unregulations to be issued by the Treasury Department.

TITLE I Deterring the Use of Offshore Secrecy Jurisdictions for Tax Evasion

Establish presumptions for entities and transactions in Offshore Secrecy Jurisdictions. (101)Establishes rebuttable evidentiary presumptions in tax and securities legal proceedings for non publicly-tradedentities located in Offshore Secrecy Jurisdictions. The presumptions are as follows:

Control In a tax proceeding, if a U.S. person (other than a publicly traded corporation) directly or indirectly formtransferred assets to, or was a beneficiary of, or received distributions from an Offshore Secrecy Jurisdiction entity,will be presumed that the person exercised control over the entity.

Transfers of income In a tax proceeding, any amount or thing of valuetransferred to a U.S. person (other than a publicly traded corporation) directly or indirectly from an account or entiin an Offshore Secrecy Jurisdiction, or transferred from such a U.S. person directly or indirectly to an account or enin an Offshore Secrecy Jurisdiction, will be presumed to represent previously unreported income to the U.S. personthe year of transfer.

Beneficial ownership In a proceeding to enforce securities law, if a U.S. person (other than a publicly tradedcorporation) formed, transferred assets to, or benefited from an Offshore Secrecy Jurisdiction entity (other than apublicly traded corporation), it will be presumed that the person beneficially owned and exercised control over sucentity, regardless of the nominal ownership.

Foreign financial accounts Current law requires that U.S. taxpayers report to the IRS any foreign financial accouncontaining at least $10,000 (known as an FBAR filing). Bill establishes presumption that any account in an OffshorSecrecy Jurisdiction contains funds sufficient to trigger this reporting requirement.

These presumptions are needed in civil judicial and administrative proceedings because the tax, corporate, or banksecrecy laws and practices of these jurisdictions make it nearly impossible for U.S. authorities to gain access toneeded information. Presumptions may be rebutted by clear and convincing evidence. No evidence may be accept

from a non-U.S. person unless the person appears to testify in the proceedings.

Treasury and SEC are authorized to issue regulations or guidance to implement this section, and exempt classes otransactions, such as corporate reorganizations, that do not present the potential for abuse.

Determine Offshore Secrecy Jurisdictions. (101)Provides initial list of 34 Offshore Secrecy Jurisdictions, while giving Treasury Secretary discretion to add or subtrafrom the list using certain criteria. Initial list of jurisdictions was taken from IRS court filings identifying them asprobable locations for U.S. tax evasion:


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Anguilla Antigua and Barbuda Aruba Bahamas Barbados Belize Bermuda British Virgin Islands Cayman

Islands Cook Islands Costa Rica Cyprus Dominica Gibraltar Grenada Guernsey/Sark/ Alderney Hong

Kong Isle of Man Jersey Latvia Lichtenstein Luxembourg Malta Nauru Netherlands Antilles Panama

Samoa St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Singapore Switzerland Turks and

Caicos Vanuatu

Directs Treasury Secretary to list jurisdictions with secrecy laws or practices that unreasonably restrict U.S. taxauthorities from obtaining needed information, unless the jurisdiction has information exchange practices that

effectively overcome those secrecy barriers.

Authorize special measures against foreign jurisdictions, financial institutions, and others that impede U.S. taxenforcement. (102)

Currently, Treasury has the authority under 311 of the Patriot Act (31 U.S.C. 5318(a)) to impose financial sanctionon foreign jurisdictions, financial institutions, or transactions found to be ofprimary money laundering concern.

Bill would authorize Treasury to impose the same sanctions on the same types of entities if Treasury finds them toimpeding U.S. tax enforcement. In addition, the bill would add to the list of possible sanctions the ability to denyforeign banks the authority to issue credit cards for use in the United States.

Allow more time for investigations involving Offshore Secrecy Jurisdictions. (103)

Extends from three years to six years the amount of time IRS has after a return is filed to investigate and proposeassessment of additional tax if the case involves an Offshore Secrecy Jurisdiction.

Increase disclosure of offshore accounts, transactions, and entities. (104)Requires any bank or securities firm that knows from its anti-money laundering due diligence that the beneficialowner of one of its foreign-owned financial accounts is a U.S. taxpayer, to file, in its role as withholding agent, a 10form reporting account income of that beneficial owner to the IRS.

Requires any financial institution directly or indirectly opening a financial account or creating an entity in an OffshSecrecy Jurisdiction for a U.S. client to report the transaction to the IRS.

These filing requirements would be subject to the same penalties under Title 26 presently applicable to forms 1099and W-2, and bank and securities regulators are given express authority to use their existing enforcement authorityaddress failures to report.

Prevent misuse of foreign trusts for tax evasion. (105)Attributes all powers and interests held by trust protectors of foreign trusts to the U.S. trust grantor.

Treats a U.S. person who receives or uses cash or other property from a foreign trust as a beneficiary of that trust,unless the exchange was for fair market value.

Expands the list of taxable trust distributions to include loans of real estate, marketable securities, and personalproperty of any kind, including artwork, furnishings and jewelry.

Amends tax code to treat foreign trusts with current or future U.S. beneficiaries, including contingent U.S.beneficiaries, as grantor (i.e. taxable) trusts, rather than limiting that treatment to trusts with current U.S.beneficiaries.

Limit legal opinion protection from penalties with respect to transactions involving Offshore Secrecy Jurisdictions.(106)

Denies the penalty protections afforded by a legal opinion if the transaction involves an Offshore Secrecy JurisdictiTreasury is also authorized to exempt opinions that express a high confidence level regarding the tax treatment of


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transaction and opinions on certain classes of transactions that are determined not to present the potential for abusaddressed by the bill.

TITLE II Other Measures to Combat Tax Haven and Tax Shelter Abuses

Increase penalty for failing to disclose offshore holdings. (201)

Imposes penalty of up to $1 million per violation of U.S. securities law on public companies or their officers, director major shareholders who knowingly fail to disclose offshore holdings that should have been reported to the SEC.

Set deadline for anti-money laundering rule for hedge funds. (202)

Requires Treasury, in consultation with SEC, to finalize a proposed rule requiring unregistered investmentcompanies, such as hedge funds and private equity funds, to establish anti-money laundering programs and submisuspicious activity reports. Requires rule to make it clear that such unregistered investment companies must use ddiligence to evaluate investors supplying offshore funds and comply with same requirements as other financialinstitutions for producing records.

Apply anti-money laundering requirements to company formation agents. (203)

Adds company formation agents to current list of those who must comply with Bank Secrecy Act reportingrequirements.Requires Treasury to adopt regulations applying Bank Secrecy Act requirements to company formation agents.

Strengthen summons in cases involving offshore secrecy jurisdictions. (204)

Improves use of John Doe summonses in cases involving Offshore Secrecy Jurisdictions by:allowing immediate summonses for U.S. correspondent account records of financial institutions located in anOffshore Secrecy Jurisdiction; authorizing courts to presume for any summons relating to transactions in OffshoreSecrecy Jurisdictions that there is a reasonable basis for believing the case involves non-compliance with tax laws; permitting a court to authorize John Doe summonses on an open-ended basis for three-year periods for projectinvestigations, provided that the court exercises ongoing oversight of the IRS summonses. The bill requires GAOevaluation of this provision after five years.

Improve enforcement of foreign financial account reporting. (205)

Clarifies the authority of IRS agents investigating Foreign Bank Account Report (FBAR) violations to use taxinformation in the investigations; simplifies the calculation of FBAR penalties by tying the penalty to the highestbalance in the account during the reporting period; and clarifies that Suspicious Activity Reports may be used for cand not just criminal, tax law enforcement.

TITLE III Preventing Abusive Tax Shelter Transactions

Strengthen tax shelter penalties

Strengthens penalties for:promoting abusive tax shelters (301)knowingly aiding or abetting a taxpayer in understating tax liability (302)

Prohibit tax shelter patents (303)

Prohibits the issuance of any patent designed to minimize, avoid, defer or otherwise affect the liability for tax.

Prohibit tax service fees contingent upon specific tax savings (304)

Prohibits charging a fee for tax services in an amount that is calculated according to or dependant upon a projecte


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actual amount of tax savings or losses offsetting taxable income.

Deter financial institution participation in abusive tax shelter activities (305)

Requires federal bank regulators and the SEC to develop and utilize examination techniques to detect violations byfinancial institutions of the prohibition against providing products or services that aid or abet tax evasion or thatpromote or implement abusive tax shelters and report potential violations to the IRS.

Strengthen law enforcement through information sharing (306-307)

Authorizes Treasury to share certain tax return information with the SEC, federal bank regulators, or PCAOB, undcertain circumstances, to enhance tax shelter enforcement or combat financial accounting fraud. ClarifiesCongressional subpoena authority to obtain information (but not a taxpayer return) from tax return preparers.Clarifies Congressional authority to obtain certain tax information (but not a taxpayer return) from Treasury relatean IRS decision to grant, deny, revoke, or restore an organizations tax exempt status.

Require tougher tax shelter opinion standards for tax practitioners (308)

Codifies and expands Treasurys authority to issue Circular 230 standards for tax practitioners providing opinionletters on specific tax shelter transactions.

TITLE IV Requiring Economic Substance Codify and strengthen the economic substance doctrine

(401-403)

Codifies and strengthens the economic substance doctrine to invalidate transactions that have no meaningfuleconomic substance or business purpose apart from tax avoidance or evasion. Also increases penalties forunderstatements attributable to a transaction lacking in economic substance.

Links

Certified Risk and Compliance Professional (CRCP) -


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Distance Learning and Online Certification Program

Certified Information Systems Risk and Compliance Professional (CISRCP) -Distance Learning and Online Certification Program

To learn more:www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

stop tax haven abuse act

Documents