Tax Cheats or Avoiders

The IRS is establishing a new unit to catch rich international investors attempting to use law to avoid taxes through investments in trusts, real estate and closed corporations.  At one point, the article uses the phrase, "tax cheat" to describe people involved in activities that is better called tax avoidance.  A tax cheat does not pay taxes he or she knows are legally due. 

People respond to incentives, and both the demeaning language used to describe these international investors and the bill may decrease incentives to invest internationally and domestically.  Imagine that you are an international investor and you have read the following article (Kim Dixon, Reuters, "Exclusive: IRS hires "hundreds" for new wealth unit").  How would it affect your investment strategies?

WASHINGTON (Reuters) - A new Internal Revenue Service unit set up to catch rich tax cheats hiding their wealth in complex business entities is rapidly taking shape with the hiring of hundreds of employees.

The IRS high wealth unit, part of a broader effort to combat international tax evasion, is focusing on "the entire web of business entities controlled by a high wealth individual," IRS Commissioner Doug Shulman told a tax conference this week.

Another IRS official told Reuters "hundreds" of people have already been hired to staff the new unit, including some from within the agency.

"We have drawn top talent within the IRS that have expertise involving wealthy individuals as well as examination of their related entities," said Mae Lew, an IRS special counsel.

The high-wealth unit is focusing on trusts, real estate investments, privately held companies and other business entities controlled by rich individuals.

While use of sophisticated legal structures can be legal, in other instances they "mask aggressive tax strategies," Shulman said.

Tax authorities in Japan, Germany and the UK have also created similar units.

The U.S. House of Representatives on Thursday approved a $387 million boost for the IRS for the fiscal year that started October 1, in part to fund the high-wealth unit. The Senate is expected to vote on the measure on Sunday.