Introduction of the Stop Tax Abuse Act
The Stop Tax Haven Abuse Act was introduced on March 2, 2009 by Senator Carl Levin. The Act is an improved version of legislation introduced in the last Congress by Levin, Sen. Norm Coleman, R-Minn., then Sen. Barack Obama, and others in the Senate and by Doggett and over 40 cosponsors in 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 tax purposes; (2) close an offshore tax dividend loophole that enables non-U.S persons to dodge payment of U.S. taxes on U.S. stock dividends; and (3) expand the tax return reporting requirements for passive foreign investment corporations (PFICs) to include U.S. persons who don’t 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 securities law 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 taxpayer proves otherwise.
- IMPOSE TOUGHER REQUIREMENTS ON U.S. TAXPAYERS USING OFFSHORE SECRECY JURISDICTIONS (§101) by authorizing Treasury to develop a list of jurisdictions starting from an initial 34 jurisdictions identified in IRS court proceedings.
- AUTHORIZE SPECIAL MEASURES TO STOP OFFSHORE TAX ABUSES (§102) by giving Treasury authority to 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 STATES CLAIMING FOREIGN STATUS (§103) by treating foreign corporations that are publicly traded or have gross assets of $50 million or more and whose management and control occurs primarily in the United States as U.S. domestic corporations for income tax purposes.
- STRENGTHEN DETECTION OF OFFSHORE ACTIVITIES (§105) by requiring U.S. financial institutions that open accounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.S. clients, 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 real estate, artwork, or jewelry to U.S. persons, and treating U.S. persons who receive offshore trust assets as trust beneficiaries.
- CLOSE THE OFFSHORE TAX DIVIDEND LOOPHOLE (§108) by treating all U.S. corporate dividend-based payments to non-U.S. persons as taxable income subject to withholding.
- EXPAND IRS REPORTING REQUIREMENTS (§109) for passive foreign investment companies (PFICs) to include not 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 to ensure they screen their clients and any offshore funds.
- STRENGTHEN PENALTIES (§301-302) on tax shelter promoters by increasing the maximum fine to 150% of their ill-gotten gains, and on corporate insiders who hide offshore stock holdings by increasing the maximum fine to $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 “inventions” designed to minimize, avoid, or defer taxes.
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