Senators Set Sights On Overseas Tax Havens

Three senators proposed legislation that would target what they say is $100 billion a year in tax revenue lost each year because of overseas tax havens, in part by forcing hedge funds to track their foreign investors.

The measure would impose tougher requirements on U.S. taxpayers using offshore secrecy jurisdictions, give the U.S. Treasury the authority to take action against foreign jurisdictions that impede tax enforcement, stiffen penalties against abusers and close offshore trust loopholes, according to a summary of the bill released by Michigan Democrat Carl M. Levin.

The legislation would require hedge funds to establish programs to combat money laundering and better track offshore investors, under guidance from the Treasury Department. The measure would also prohibit the U.S. Patent and Trademark Office from issuing patents for accounting strategies intended to "minimize, avoid, defer, or otherwise affect liability for federal, state, local, or foreign tax."

"We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers," Levin said in a joint statement with co-sponsors Norm Coleman (R-Minn.) and Barack Obama (D-Ill.). "Offshore tax havens have declared economic war on honest taxpayers by helping tax cheats hide income and assets that should be taxed in the same way as other Americans."

The Treasury Department and top lawmakers in both houses of Congress have made a priority this year reducing the so-called tax gap, the difference between what individuals and companies owe and what they pay. The IRS said a study of 2001 tax returns shows the tax gap is about $345 billion a year, only $55 billion of which is recovered.

The legislation is a "strengthened" version of a measure introduced in 2005 by the senators, Levin said, and is the product of a four-year probe by the Senate permanent subcommittee on investigations.