UPDATE 2-Obama admin. backs tax haven bill, IRS eyes cheats

(Recasts; adds IRS lawyer, background, bylines)

By Kevin Drawbaugh and Corbett Daly

WASHINGTON, March 3 (Reuters) - The Obama administration on Tuesday endorsed legislation to crack down on offshore tax havens, raising the stakes in a mounting dispute between the United States and bank-secrecy nations such as Switzerland.

The endorsement of bills unveiled on Monday in the Senate and the House of Representatives came from U.S. Treasury Secretary Timothy Geithner at a congressional hearing.

"We fully support the legislation ... on offshore tax centers, and we look forward to working with you as part of the broader effort to address international tax evasion," Geithner told the House Ways and Means Committee.

The U.S. government last month widened its legal assault on tax dodgers with secret offshore accounts by suing Swiss banking giant UBS AG (UBSN.VX)(UBS.N) to try to obtain the names of thousands of its rich U.S. clients.

Tax havens are estimated to deprive the U.S. government of more than $100 billion a year, say advocates of the bills introduced by Michigan Senator Carl Levin and Texas Rep. Lloyd Doggett, with the backing of other Democrats.

When he was a senator last year, President Barack Obama co-sponsored similar legislation with Levin.

A thriving business in tax evasion developed in recent years on Wall Street among consulting firms, law firms, hedge funds and other elite financial players. Some purveyors even sought patent protection for their off-the-shelf schemes.

The Levin and Doggett bills would ban patenting tax avoidance plans, target dozens of offshore "secrecy jurisdictions" for more scrutiny and put a greater burden on U.S. taxpayers to show that their tax arrangements are legitimate .

TOUGHER IRS RULES?

A senior U.S. Internal Revenue Service lawyer told Reuters the IRS may team up with other governments to crack down on tax cheats as it faces pressure to toughen rules on Americans who try to conceal income in offshore tax havens.

"We are concerned about U.S. people hiding their assets and not reporting their correct worldwide income," Steven Musher, IRS associate chief counsel for international issues, said in an interview on the sidelines of a banking conference.

At the same time, Musher said the IRS does not want changes to be burdensome for banks and financial institutions.

"We are trying to achieve the balance between increasing the reliability and quality of documentation to serve these various competing purposes," he said.

Musher declined to discuss the agency's lawsuit seeking to obtain the names of thousands of American clients with overseas accounts at UBS.