Senators plan laws to target offshore tax evasion

— -- Senate Finance Committee leaders announced plans for new laws against offshore tax evasion Thursday after a new federal report found American ties to thousands of firms registered in the Cayman Islands.

Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa, said the IRS needs a longer statute of limitations to prosecute those who fail to report foreign accounts, clearer authority to enforce the filing requirement and stricter identity-disclosure rules for those who profit from offshore transactions.

"We also need to reform our tax code to make moving business offshore less attractive," said Baucus. "That's a tall order."

Specific legislation is expected to be introduced later this year. The preliminary descriptions were announced during a committee hearing on a Government Accountability Office report that showed as many as half of the 18,857 entities registered at a single Caymans Island office building were either U.S.-owned or had U.S. billing addresses.

The entities often participated in investment activities related to hedge funds, private-equity funds, securitization or aircraft finance, the GAO said. Although that activity is legal, the report said there had been 21 recent U.S. civil or criminal cases involving alleged tax evasion, money laundering or securities fraud cases involving the Caymans. The GAO also cited 45 IRS field agent requests to the IRS official responsible for the Caribbean since 2003 about potential criminal activity by Americans with business dealings in the islands.

Compliance problems are not more prevalent in the Caymans than elsewhere, and local officials have "taken steps to address illegal activity by U.S. persons," the report said. However, the GAO concluded that limited business reporting requirements and other barriers made it harder for the U.S. to investigate financial crimes.

Baucus said the report, combined with last week's Senate finding that banks in Switzerland and Liechtenstein may have helped wealthy Americans evade taxes, shows a need for tighter laws.