I.R.S. to offer deal to offshore tax evaders/US retail investors flee to savings

I.R.S. to offer deal to offshore tax evaders
By Lynnley Browning
Copyright by tHe International Herald Tribune
Published: March 26, 2009
http://www.iht.com/articles/2009/03/26/business/27tax.php


The Internal Revenue Service, under pressure to bring in money to the faltering economy, plans to give offshore tax evaders a big break.

The agency has drafted a plan that significantly lowers a penalty that applies to wealthy Americans who hide money overseas in secret accounts, a person briefed on the matter said Thursday. The plan is intended to lure out of hiding scores of wealthy people who must come forward and declare their accounts in order to take advantage of the lower penalty.

The plan was developed amid a widening investigation into wealthy American clients of UBS but will apply to clients of other banks as well.

Under the plan, according to the person briefed on the issue, the I.R.S. will cut an onerous penalty for not filing a Report of Foreign Bank and Financial Account, known as an Fbar — something offshore tax evaders have not done.

The current penalty is 50 percent of the high balance of each account over the last three years — an amount that can wipe out an investor's accounts in just two years — but the I.R.S. will reduce that penalty to 5 percent to 20 percent, depending in part on whether the wealth was inherited.

The I.R.S. will also require taxpayers to pay any taxes and interest owed over the last six years, as well as assess a standard, accuracy-related penalty of 20 percent. Taxpayers must also file amended returns for the last six years.

The proposal, which the I.R.S. is communicating to its field agents who audit returns, does not allow taxpayers to escape potential prosecution, but it makes that outcome less likely, in particular for those covered under the 5 percent Fbar penalty, this person said.

"They need to get money back into the system, so they needed to sweeten the deal," the person said.

An I.R.S. spokesman declined to comment.

The plan comes after the I.R.S. last November scrapped a last-minute proposal to create a global settlement for taxpayers with offshore accounts. Such settlements in the past have come under criticism for not attracting enough tax evaders.

The new plan may be more likely to draw in tax evaders because the I.R.S. and the Justice Department are exerting significant legal pressure on UBS, the world's largest private bank, to disclose 52,000 client names. Unless those clients come forward before their names are potentially turned over, they can face a heightened risk of being prosecuted, as well as the steeper Fbar penalties.





US retail investors flee to savings
By Deborah Brewster in New York
Copyright The Financial Times Limited 2009
Published: March 25 2009 23:37 | Last updated: March 25 2009 23:37
http://www.ft.com/cms/s/0/182e200a-1973-11de-9d34-0000779fd2ac.html


US retail investors poured close to $250bn (€184bn) into bank accounts in the first months of this year, sharply accelerating a flight to safety as they continued to flee volatile stock markets.

Bank savings deposits rose by $246bn to a record $4,343bn in the nine weeks to March 9, according to data from the Federal Reserve. This is more than the whole of 2008, in which savings deposits rose by $229bn.

The big plunge into cash comes in spite of repeated government attempts to restart frozen fixed-income markets and restore confidence in the financial system.

It is not clear where all the deposits came from but in the first two months of the year investors pulled $20bn from stock mutual funds – almost half the total $43bn redeemed during the whole of 2008 – as they appeared to lose confidence in stock markets, according to data from Financial Research Corporation.

During the first nine weeks of the year, investors pulled a small amount – $15bn – from savings accounts with a period of notice, in an apparent indication they were reluctant to lock up cash for even short periods of time.

Charles Biderman, chief executive of TrimTabs, a research group, said: “Net flows into savings have gone into only two places – bank savings and US Treasuries. Both . . . offer extremely low yields with a high degree of safety.

“During an economy where equity prices are down about 50 per cent and home prices down about 30 per cent or so, is there any question as to why money is flowing only into the safest bets?”

Historically, money flows more strongly into bank accounts when stock markets are falling. In 2005 and 2006, when US equities rose, retail investors put less than $100bn into savings and current accounts each year.

The previous record year for a rise in bank deposits was 2002, following the dotcom boom, when deposits rose by $465bn. “During hard times people worry about return of principal, not return on principal,” Mr Biderman said.

As retail investors seek cash, hedge fund managers are placing big bets on gold in the belief that paper currencies will be debased.

The Federal Reserve tracks assets held in bank accounts, not actual inflows. But with interest rates at typical savings accounts hovering below 2 per cent, the rise in deposits – which includes current accounts – is overwhelmingly due to an inflow of new money rather than returns.