By Bob Bauman

In a delicious display of irony, if not outright chutzpah, U.S. Treasury Secretary Timothy Geithner on Tuesday said that he and President Barack Obama's administration support legislation that would make all Americans who use offshore tax havens presumed guilty of tax evasion.

The irony is that Geithner's cabinet nomination was stalled earlier this year after he was exposed as having failed to pay the IRS, over several years, almost $50,000 in back taxes and interest. As Secretary, Tim the tax scofflaw, is now also head tax collector of the Internal Revenue Service.

Levinism Redux

Obama's official support came after the notorious anti-tax haven demagogue, U.S. Senator Carl Levin (D-MI), on Monday introduced S. 506,the "Stop Tax Haven Abuse Act", an expanded version of previous legislation he co-sponsored in 2007 with then Senator Obama. A companion House bill, H.R.1265, was also introduced by Rep. Lloyd Doggett (D-TX) and 56 other Democrats. (Bill texts available at http://www.thomas.gov).

With his usual bombast and presumably a straight face, Senator Levin claimed to reporters that when Americans exercise their legal right to have banks accounts or financial dealings in places like Switzerland and the Cayman Islands, that it is "undermining the integrity of our tax system." He went on to voice his oft repeated (but never proven) claim that "offshore tax abuses rob the U.S. Treasury of an estimated $100 billion each year..."

Adding to his usual hyperbole, Levin again repeated the nonsensical claim that, "tax havens are engaged in economic warfare against the United States, and honest, hardworking Americans." If anyone is engaged in warfare, it is the Senator from Michigan against his straw man villain of tax havens.

Radical Changes in Tax, Trust Laws + Another Blacklist

This radical legislation upends established tax rules and trust and asset protection law by, among other things, creating, 1) a presumption that a U.S. taxpayer who "formed, transferred assets to, was a beneficiary of, or received money or property'' from an offshore entity, such as a trust or family foundation, is in control of that entity, and; 2) a presumption that funds or other property received from offshore are taxable income, and that funds or other property transferred offshore have not yet been taxed! [Emphasis mine].

Galloping Socialism

Here's more of the tyranny Levin's 84-page bill would impose:

* authorize Treasury to publish a blacklist of "offshore secrecy" jurisdictions, starting with 34 jurisdictions named in the bill and impose tougher reporting requirements on U.S. persons with dealings in those jurisdictions;

* give the Treasury broad authority to take undefined "special measures" against foreign jurisdictions and financial institutions that "impede" U.S. tax enforcement;

* taxes at the U.S. 35% corporate tax rate for foreign corporations that are publicly traded or have gross assets of US$50 million or more if their management and control primarily is in the United States, treating then as U.S. domestic corporations for income tax purposes.

* require U.S. financial institutions that open offshore accounts for foreign entities controlled by U.S. clients, open accounts in offshore jurisdictions for U.S. clients, or establish entities in offshore jurisdictions for U.S. clients, to report all such actions to the IRS;

* tax distributions, gifts and loans from foreign trusts of real estate, artwork, or jewelry to U.S. persons, and treat U.S. persons who receive offshore trust assets as trust beneficiaries.

* treat all U.S. corporate dividend-based payments to non-U.S. persons as taxable income subject to U.S. withholding.

The bill also ups penalties on tax shelter promoters to a maximum fine of 150% of owed taxes and increases the maximum fine for failure to report offshore stock holdings to US$1 million per each violation of U.S. securities laws. It also prohibits the U.S. Patent Office from issuing patents or copyrights for plans designed to minimize, avoid, or defer taxes.

Reasonable Approach?

Perhaps the one possibility of a reasonable approach to the offshore issue will come in the Senate Finance Committee, which has jurisdiction over Levin's bill. There, as I have said, Senator Max Baucus, committee chairman, may push his own, less radical legislation. We can only hope so.

BOB BAUMAN, Legal Counsel

P.S. I urge you to join me at this year's Total Wealth Symposium in Bermuda, where our investment experts can help you re-think your portfolio, and our Asset Protection advisors can help you get a plan in place before Levin, Obama and Geithner get their way. Click here to see the itinerary.