For years, people across the country have tried countless times to scam, trick, or do something to get around the IRS and their relentless nature of tax collection. Most of the time, those people have gotten caught and slapped with hefty fines and even received prolonged jail time for their efforts. However, every once and a while someone figures out a loophole buried deep in the tax laws that helps them slip under the radar of the IRS.

How It’s Done – Simplified

A committee, led by Oregon Democrat Ron Wyden, focused on a specific loophole in a 12-year-old US law designed to crack down on offshore tax evasion. Robert Brockman, a billionaire software developer who was indicted in the largest tax evasion against an individual in U.S history, passed away this month at 81 before his case came to trial, he allegedly used offshore trusts and corporations to hide $2 billion in income from the IRS. The popular method of tax avoidance comes from the 2010 Foreign Account Tax Compliance Act or FACTA. This act requires banks around the world to report assets and accounts of US clients to the IRS, however wealthy Americans have figured out a way to get around this rule and fly under the radar.

The report described a “Shockingly easy” process that involves setting up shell companies abroad and registering them with the IRS as offshore institutions. The IRS then issues a Global Intermediary Identification Number (GIIN) for the company that relieves the banks of the FACTA requirement of investing whether the company is owned by an American. There are hundreds of thousands of entities with GIINs in tax havens like the Cayman Islands, British Virgin Islands, and Guernsey. Most of the time the IRS issues these GIIN’s without doing any due diligence on the legitimacy of the company and its assets & recipients making it extremely easy for wealthy Americans to lay low and reap the rewards.

Wrap Up

It was recommended in a report that Congress and the Treasury should toughen up their due-diligence requirements for large money transfers, as well as screen the GIIN applications more rigorously than they previously did. The IRS recently has seen an $80 billion increase in funds so it will have to be seen if they use some of that money to upgrade their systems to prevent this from happening.