IRS Set to Close Tax Loopholes for Non-U.S. Banks

[Purveyor]

July 16 (Bloomberg) -- The Internal Revenue Service will close loopholes in its agreements with foreign banks that Swiss lender UBS AG and its clients allegedly exploited to shield $20 billion in assets from U.S. taxes, an agency official said.

Barry Shott, the IRS's deputy commissioner of international affairs, said in an interview the crackdown will make it harder for Americans to conceal assets in offshore shell companies. The agency for the first time will require accounting firms to report any activity that may constitute fraud as defined by the U.S., he said.

``We're trying to pierce the veil,'' Shott said. ``It's going to happen in the near future. This is not a long-term project.''

The IRS is putting the finishing touches on the new rules one day before the Senate Permanent Subcommittee on Investigations releases a report on secret accounts at Zurich- based UBS and Liechtenstein's LGT Group.

The new rules, at least two years in the making, are aimed at tightening enforcement of so-called Qualified Intermediary contracts. The QI program was adopted in 2000 to help the IRS keep track of U.S. customers' money in foreign banks.

Under the program, foreign banks agree to confirm U.S. depositors' identities and notify the IRS of income earned in the accounts. In exchange, the banks can eliminate withholding taxes or withhold taxes at favorable rates. Without the agreement, they would be required to withhold 30 percent.

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BLOOMBERG: http://www.bloomberg.com/apps/news?pid=20601109&sid=afaIyKMEym.g&s=polyhoo