Tax scam busted after Canadian, U.S. investigation

Tax authorities need to "make sure the lawyers, accounting firms and investment bankers are playing by the rules," he said.

The Toronto Star
August 4, 2006

Tax scam busted after Canadian, U.S. investigation
Cheats set up cross-border schemes. Year-long case tipped off in Canada.
Robert Guy Matthews

The U.S. Internal Revenue Service and Canadian tax authorities said they uncovered a cross-border scheme involving upper-income investors who withdraw money from their retirement accounts, then invest in bogus offshore companies to generate huge tax losses.

The tax shelter, hawked on the Internet and in seminars by promoters in the United States and Canada, involved hundreds of taxpayers who logged tens of millions of dollars in improper deductions and unreported income from retirement-account withdrawals.

The year-long investigation continues, said Jacqueline Couture, spokeswoman for the Canada Revenue Agency. More taxpayers and promoters are likely to be ensnared, she said.

The IRS has been stepping up efforts against abusive and illegal tax shelters seen contributing to the growing $290 billion (U.S.) annual tax gap - the amount of tax assessed but not paid to the U.S. treasury.

The U.S., Canada, Australia and the United Kingdom have formed a partnership called the Joint International Tax Shelter Information Center that looks at cross-border schemes, with the aim of catching tax cheats.

This latest tax shelter was uncovered when a tip came to Canada and, through the partnership, was shared with the U.S.

In the scheme, promoters marketed themselves as investment clubs with an opportunity to invest in what would appear to be high-yield offshore investments.

The participants then transfer money into a complicated series of investments that would allegedly allow them to bring the money back into the U.S. and Canada without paying any taxes.

There is increasing co-operation among countries over discovering tax shelters, especially offshore schemes.

Just this week, IRS Commissioner Mark Everson was chosen to head the Forum on Tax Administration, a panel of tax administrators from around the world.

Everson said that his mission is to ramp up enforcement to catch tax dodgers. Tax authorities need to "make sure the lawyers, accounting firms and investment bankers are playing by the rules," he said.

Credit: Dow Jones News Service

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