How Offshore Tax Havens Beat IRS Audits

More middle-class taxpayers face IRS audits:

Since 2000, the tax authorities at the IRS have nearly tripled audits of tax returns filed by people making $25,000 to $100,000. Audits of these middle-class taxpayers rose to nearly 436,000 last year from about 147,000 returns in 2000. For these 61 million individuals and married couples, nearly half of all taxpayers, the odds of being audited rose from one in 377 to one in 140.

High-income taxpayers also face more audits:

Audits of those earning $1million or more increased by 33 percent from 2005 to 2006, the IRS reported. And audits of individuals making more than $100,000 jumped about 18 percent from 219,208 in 2005 to 257,851 in 2006 - the highest number in more than a decade and more than double the amount conducted in 2001, the agency said.

One problem: According to this New York Times dispatch, the really big fish are escaping, thanks to offshore tax havens.

The Internal Revenue Service is curtailing audits of many people who use offshore tax havens, even when agents see signs of tax evasion, because agents fear they cannot meet a three-year deadline for finishing an examination, Congressional investigators have found.

In a report to be released on Thursday, the Government Accountability Office found that I.R.S. agents are so hobbled by “dilatory tactics” by offshore taxpayers and other problems that it takes almost two and a half years to complete a typical audit.

Many I.R.S. agents told the G.A.O., the investigative arm of Congress, that the “safest way” was often to stop an audit prematurely and sometimes to refrain from starting one in the first place.

The I.R.S. reported that almost $300 billion in investment and business income was moved out of the United States in 2003. Analysts at the Joint Committee on Taxation have estimated that the annual outflow has shot to more than $400 billion since then.

Which tax havens might appeal to your clients? To cite only two out of many:

Andorra

Lots of fresh, mountain air, and there ought to be good skiing.

Isle of ManDo business in the City Thursday morning. Stop by your very private Isle of Man bank in the afternoon. Have dinner in Scotland and be ready for an early outing on the links Friday morning.

Thanks to Wikipedia Commons for the maps.