Congress is investigating a series of schemes by businesses and organized crime to bilk the Treasury of hundreds of millions of dollars a year in federal gasoline excise taxes.
The House Ways and Means subcommittee on oversight will hold a hearing Tuesday to examine what federal agencies can do to prevent evasion. Officials from the Justice Department, the Internal Revenue Service, the Federal Highway Administration (FHWA) and the Treasury Department are expected to testify.
The subcommittee also will look at examples of evasion of state gasoline excise taxes, which some authorities believe is widespread.
"Investigations to date suggest that the evaders are many, their scheme is easy and the loss is substantial," FHWA Administrator R.A. Barnhart wrote Treasury Secretary James A. Baker III in April. Barnhart cited one estimate of $1 billion a year in lost U.S. tax dollars.
The Criminal Investigation Division of the IRS calculated federal gasoline excise tax losses at $100 million to $200 million for fiscal year 1986, according to information provided by the subcommittee. The IRS will collect an estimated $8.8 billion in taxes this year.
The tax evaders use two basic methods, according to the subcommittee. In the first, distributors establish an elaborate chain of tax-exempt companies, which exist only on paper. One of the dummy companies claims to have paid the tax before selling it to the next distributor. From that point on, no more taxes are owed.
It is difficult to trace this paper route and, even if auditors succeed, they usually find nothing but a post office box number.
Meanwhile, the gasoline is sold from one distributor directly to the retailer -- without the tax.
The second form of evasion, bootlegging, occurs when gasoline in transit is emptied from tank cars, barges, pipelines or trucks and sold illegally to retailers.
Bootleggers have another tactic: They purchase the gasoline legally in one state and then transport it to another state, where they do not register with authorities and thus evade federal and state taxes.
At Tuesday's hearing, FHWA authorities are expected to propose a change in the federal tax code. Currently, distributors can postpone paying the excise tax until they sell the gasoline to the retailer. In his letter to Baker, FHWA chief Barnhart recommended taxing the refineries or first importer of a refined product, no matter who buys the gasoline.