Report: Tax Evasion, Avoidance Costs United States $100 Billion A Year

'Activity appears to have increased substantially in recent years'

January 23, 2015

Companies and U.S. citizens shifting profits and income offshore are bilking the U.S. government out of $100 billion in tax revenue a year, according to a new analysis by a congressional research group.

Those using offshore tax havens to skirt paying taxes cost the U.S. government "around $100 billion per year," according to the Congressional Research Service (CRS), which examined in a new report the many ways in which people cheat the government.

"This activity appears to have increased substantially in recent years," the report notes.

"The federal government loses both individual and corporate income tax revenue from the shifting of profits and income into low-tax countries," researchers found. "The revenue losses from this tax avoidance and evasion are difficult to estimate, but some have suggested that the annual cost of offshore tax abuses may be around $100 billion per year."

When it comes to individuals, a large portion of the tax evasion occurs when they take actions to move their investments to foreign companies and then "do not report the holdings of these assets on their tax returns," according to the CRS.

When a person does this, "they evade a tax that they are legally required to pay," according to CRS.

However, in some cases, even the experts at the CRS are not quite clear on the law.

"Tax avoidance is sometimes used to refer to a legal reduction in taxes, whereas evasion refers to tax reductions that are illegal," it writes. "Both types are discussed in this report, although the dividing line is not entirely clear."

For instance, "a multinational firm that constructs a factory in a low-tax jurisdiction rather than in the United States to take advantage of low foreign corporate tax rates is engaged in avoidance, whereas a U.S. citizen who sets up a secret bank account in the Caribbean and does not report the interest income is engaged in evasion," the report states.

Still, there are "many activities, particularly by corporations, that are often referred to as avoidance but could be classified as evasion," according to CRS.

The U.S. government has tried to crackdown in individual tax avoidance by increasing tax-reporting burdens.

"Provisions to address individual evasion include increased information reporting and provisions to increase enforcement, such as shifting the burden of proof to the taxpayer, increased penalties, and increased resources," the report states.

Published under: Taxes