IRS vows to crack down on offshore tax cheats

WASHINGTON (Reuters) - President Barack Obama's top tax enforcement official vowed on Tuesday to step up the U.S. crack down on wealthy citizens and institutions who use offshore bank accounts to evade taxes.

"For taxpayers who continue to hide their head in the sand, the situation will only become more dire," Internal Revenue Service Commissioner Doug Shulman said in prepared testimony to the House of Representatives Ways and Means Subcommittee on Select Revenue Measures.

Shulman said his agency would issue new rules "in a month or so" that would make it easier for the IRS to go after foreign bank accounts of U.S. citizens.

Obama and Treasury Secretary Timothy Geithner head to London on Tuesday for a summit of the Group of 20, where leaders are expected to issue a statement calling on countries like Switzerland to be more open to allowing governments come after the rich who use bank secrecy laws to hide their wealth.

"I'm a big fan that this is not a go it alone strategy and we need to be actively engaging other countries," Shulman said in response to a question at the hearing.

Before a joint session of the U.S. Congress earlier this month, British Prime Minister Gordon Brown called on world governments to "outlaw offshore tax havens."

And there had been talk that the G20 would publish a "blacklist" of tax-haven nations at the summit.

But Switzerland, Austria and Luxembourg offered under pressure earlier this month to relax strict bank secrecy in some tax evasion cases. German Finance Minister Peer Steinbrueck later said he did not think G20 leaders would come up with a blacklist of tax havens at their April 2 summit.

On Capitol Hill, however, Democratic lawmakers, including Michigan Senator Carl Levin and Texas Rep. Lloyd Doggett, are still pursuing legislation that would allow the U.S. to publish its own list of jurisdictions that could be subject to trade sanctions.

And Massachusetts Rep.Richard Neal, the chairman of the panel where Shulman testified, has his own plans in the works.

The U.S. is in the midst of a high-profile dispute with Switzerland over its bank secrecy laws. Switzerland agreed earlier this month to relax its strict bank secrecy rules and cooperate more on tax evasion to fend off a global crackdown on tax havens.

The country has been under pressure because of an IRS tax fraud investigation targeting Swiss bank UBS AG.

The U.S. could be losing as much as $50 billion in tax revenue because offshore tax accounts, Reuven S. Avi-Yonah, a professor at the University of Michigan law school, testified at the hearing.

Earlier this month, the IRS announced new steps aimed at getting taxpayers hiding money in offshore accounts to pay up, reducing penalties on unpaid back taxes and promising not to file criminal charges against those who voluntarily come forward.

The IRS said it would reduce penalties to 20 percent of the average balance in an offshore account in the one year in the past six years when the balance was highest.

Without the new guidelines, a tax cheat could have faced penalties as high as 50 percent of the assets plus 75 percent of the taxes due for all six years.

(Reporting by Corbett B. Daly)