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IRS may be missing offshore tax evasion: government watchdog

A woman walks out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson
A woman walks out of an Internal Revenue Service office in New York April 18, 2011. REUTERS/Lucas Jackson

WASHINGTON (Reuters) - The Internal Revenue Service may be missing potential tax dodgers who report their foreign accounts but who avoid paying penalties by not reporting previous years' returns, a government watchdog said in a report released on Friday.

To avoid steep penalties for offshore tax evasion, some taxpayers are making "quiet disclosures" to the IRS, reporting for the first time offshore accounts that could appear to the IRS as newly opened accounts, according to the Government Accountability Office (GAO), an investigative arm of Congress.

The government re-opened a voluntary amnesty program in 2009, the same year Swiss Bank UBS AG agreed to pay $780 million to settle charges the bank was helping Americans stash income abroad to escape U.S. taxes. It has collected $5.5 billion from about 38,000 complying taxpayers since then.

Under the program, taxpayers turn themselves in and pay a percentage of the account balance as a fee.

Taxpayers making quiet disclosure filings, on the other hand, would avoid paying any delinquent taxes and penalties, unless otherwise audited, GAO said.

In its analysis of tax filings from 2003 through 2008, GAO said it found "many more potential quiet disclosures than IRS detected."

From 2007 through 2010, the IRS estimates taxpayers reporting foreign accounts nearly doubled to 516,000, GAO said.

The IRS has not researched whether sharp increases in taxpayers reporting offshore accounts for the first time is due to efforts to escape taxes, GAO said.

Taxpayers who get away with quiet disclosures undermine the IRS's Offshore Voluntary Disclosure Program, resulting in lost tax revenue, GAO said.

The IRS has started analyzing the method GAO used to uncover quiet disclosures, Steven Miller, the acting IRS commissioner, said in a response letter to GAO accompanying the report.

"The IRS agrees that we must continue to explore additional methods for effectively identifying quiet disclosures," Miller said.

(Reporting By Patrick Temple-West; Editing by Kim Dixon and Bill Trott)

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