Washington For every convicted tax evader like Daniel Bullock, dozens more get away with cheating that costs the U.S. government as much as $70 billion a year, the Senate was told Thursday.
The testimony of Bullock and other tax evaders before the Senate Finance Committee came as the panel's top two senators, Democrat Max Baucus and Republican Charles Grassley, introduced legislation intended to stem a tide of U.S. companies moving their legal headquarters to Bermuda to escape taxes.
"We've got a problem," said Baucus, of Montana, who pointed out that the vast majority of individual taxpayers will do their duty by Monday's income tax filing deadline.
Bullock, a California orthopedic surgeon, and other tax evaders described how their skepticism about the Internal Revenue Service and the legitimacy of the tax code enabled them to be easily swept up in enticing schemes to avoid taxes.
"I realize now there is a price to be paid for being an American," said Bullock, who is serving an 18-month sentence at a federal prison in Atwater, Calif. "It's called filling out a tax form, making sure it's right and sending it in."
Like tens of thousands of other would-be taxpayers, Bullock bought into a scheme that promised he could distribute his income to a trust account located in an offshore tax haven, deduct the amount from his U.S. taxes and then receive money back from the account as a supposedly nontaxable foreign "gift."
Schemes such as this are proliferating on the Internet, through seminars held by legitimate-sounding promoters and even at some of America's leading law firms, investment banks and accounting firms. Yet the Justice Department and the IRS are barely scratching the surface, officials told the Finance Committee.
The General Accounting Office, Congress' investigative arm, found that for the 2000 tax year, the IRS so far has detected about $5 billion in improper tax avoidance by 740,000 individuals. GAO estimated, however, that another $20 billion to $40 billion had not been identified.
IRS Commissioner Charles Rossotti said the secretive nature of tax evasion made concrete estimates difficult but conceded it was in the "tens of billions" of dollars every year.
With corporate tax shelters on the rise, Baucus and Grassley became the most powerful lawmakers to introduce legislation removing tax advantages for U.S. companies that relocate headquarters to Bermuda.
The Baucus-Grassley bill would deem the new foreign-based parent as a domestic corporation for U.S. tax purposes in some cases and enhance IRS scrutiny of tax transactions in other cases.