The Department of Justice effort to get information on Americans suspected of using Swiss bank accounts to avoid U.S. taxes already has had a domestic effect.
The Senate Committee on Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations was planning to once again examine the tax haven issue next Tuesday, Feb. 24. That hearing has now been moved to March 4.
When it convenes next month, the panel members want to continue their "examination of financial institutions which are located in offshore tax havens and which use practices that facilitate tax evasion and other misconduct by U.S. clients." You can read about an earlier Subcommittee look at tax haven abuses in this post from last summer.
Of particular interest is the "John Doe" summons, which the DoJ went to court on Thursday to have enforced.
"The hearing will examine the status of the information exchange," notes the hearing announcement, as well as "the role of U.S.-Swiss tax and legal assistance treaties, and the effect of Swiss secrecy laws on the information requests."
Seeking budget support, too: Sen. Carl Levin (D-Mich.), chair of the Investigations Subcommittee, also is seeking fiscal help from the Obama Administration in fighting offshore tax abuses.
LevIn, along with Reps. Rosa DeLauro (D-Conn.), Lloyd Doggett (D-Texas) and Sander Levin (D-Mich.), earlier this month sent a letter to the Office of Management and Budget urging the new president to include measures from the Stop Tax Haven Abuse Act in his fiscal year 2010 budget proposal.
The lawmakers say that the measure, introduced last session and expected to be reintroduced in the new House and Senate soon, would deter the use of offshore secrecy jurisdictions, strengthen detection of offshore abuses, increase penalties on tax shelter promoters, close offshore tax loopholes, empower the Treasury Department to act against foreign jurisdictions that impede U.S. tax enforcement, beef-up disclosure of offshore transactions, and prohibit the issuance of tax shelter patents.
Some legit foreign tax breaks: All this focus on out-of-country tax issues got me thinking about a legitimate foreign tax break.
I'm talking about the foreign tax credit.
If you invest in international assets, you've likely seen on your year-end statements a notation that some dollars in your account went toward paying taxes to the nations that are home to your non-U.S. holdings.
You may, however, be able to use that foreign tax payment amount to reduce your U.S. tax bill.
You can count the taxes as an itemized deduction, which might help lower your taxable income amount. But the better move is probably claiming the foreign taxes as a credit.
As all y'all know by now, a deduction will reduce your taxes incrementally, based on your tax bracket. A deduction of $100, for example, will knock $25 off your tax bill if you're in the 25 percent tax bracket.
But a credit is a dollar-for-dollar tax break. If your tax bill is $1,000 and you have a $500 credit, then you owe the IRS just half your original tax-due amount.
You'll find the foreign tax credit on the long Form 1040. If the non-U.S. tax amount you paid is $300 or less, you can claim it right there on your return.
If, however, it's more than that, you'll have to deal with Form 1116. It's an intimidating form. This story I wrote for Motley Fool Investor has some of the gory details.
But if you do find yourself facing Form 1116, I suggest you get professional help or at least use tax software. That investment in assistance could pay off by helping you maximize your foreign tax credit.