in light of the revelations about thousands of wealthy Americans using offshore accounts, shouldn't Cindy McCain release 10 years of full returns?

The Senate staff of the Permanent Subcommittee on Investigations report on offshore tax evasion supported by big-name foreign banks, Tax Haven Banks and U.S. Tax Compliance, July 2008 is now available, along with a press release, and various testimony from witnesses at the July 17 2008 hearing.   According to various news outlets, UBS has said that it will stop its offshore business for US taxpayers.  See Ryan Donmoyer, UBS Stops Offshore Banking Services for US Clients, Bloomberg.com, July 17, 2008.  As Donmoyer notes, UBS bankers solicited wealthy Americans at UBS-sponsored yacht shows, art shows and golfing tournaments.

Switzerland-based UBS bankers who weren't licensed to conduct business or solicit clients in the U.S. frequently did so to woo wealthy Americans interested in secret Swiss accounts and trusts or shell companies in tax havens such as the British Virgin Islands. Id.

Citizens for Tax Justice has a short release about the report, here.  I agree heartily with their bottom line: Congress needs to take action against offshore havens, so that ordinary taxpayers aren't subsidizing the greedy lifestyles of these ultrarich tax avoiders.

Here is one account in the report of the greed and disrespect of America's tax laws shown by a US citizen, James Marsh, who ultimately held $49 million in offshore "foundations" apparently to avoid reporting and paying U.S. taxes on the income.

Marsh Accounts: Hiding $49 Million over Twenty Years.  James Albright Marsh, a U.S. citizen from Florida in the construction business, formed four Liechtenstein foundations...and transferred substantial sums to them  LGT assisted him in estaablishing the two 1985 foundations, using documents that gave Mr. Marsh and his sons substantial control over the foundations and strong secrecy protections.  By 2007, the assets in his four foundations had a combined value of more than $49 million.  Although LGT became a participant in the QI Program in 2001, which requires foreign banks to report information on accounts with U.S. securities, LGT did not report the Marsh accounts.  Instead, it advised Mr. Marsh to divest his LGT foundations of US securities, and treated the accounts as owned by non-U.S. persons, the Liechttenstein foundations that LGT had formed.  After Mr. Marsh's death in 2006, the IRS apparently discovered the Liechtenstein foundations through the documents released by the former LGT employee.  Mr. Marsh's family is now in negotiation with the IRS over back taxes, interest and penalties owed  on the $49 million in undeclared assets.

Note that Mr. Marsh's sons were apparently aware of these reported tax evasion tactics, since they had "substantial control" together with their father.  So on what basis should there be any "negotiation" with the IRS about taxes, interest and penalties?  If this was a flagrant violation of the law as it appears, then the required taxes, interest and penalties should be paid.  Marsh's family does not have an entitlement to any funds that were illegally obtained.  Penalties and interest exist to try to make the state whole when a tax evader engages in this kind of activity.  If the IRS negotiates away that penalty, that will just encourage other greedy taxpayers to engage in evasion.

Today's Wall Street Journal summarizes some critical numbers from the report:

The U.S. loses about $100 billion annually due to offshore tax evasion, according to a Senate probe that is taking aim at Swiss bank UBS AG and Liechtenstein's LGT Group for allegedly marketing tax-evasion strategies to wealthy Americans.  U.S. clients hold about 19,000 accounts at UBS, with an estimated $18 billion to $20 billion in assets, in Switzerland, according to the findings from the Senate probe and Justice Department prosecutors.

It would be interesting to speculate on just who the US citizens are that hold all those accounts and accounts with other entities that have set up purportedly untraceable private foundations offshore.  We can expect that some of the names on all those lists, if they are ever made public, will be shockingly familiar.  That suggests that anyone of considerable wealth who is in a position of power--CEO or CFO of a company, Chair of a Board, Senator, Congressman, President or Presidential adviser--would be well advised to be more open and transparent about the sources of their wealth and where they have it invested and how well they carry out their taxpaying responsibilities.  They might, in other words, figure out ways to make clear that their wealth is not socked away in some island foundation whose accounts are not attributed to them and on which they don't pay tax. 

I suppose, in this very visible campaign season, that advice goes doubly for presidential candidates.  The spotlight here would be on McCain's wife Cindy.  She fits the bill in various ways of those who might want to show themselves to be conspicuously squeaky-clean--as the principal heir to her beer-distributorship-owning father's Hensley empire that's worth hundreds of millions, as a person of considerable secrecy (only Dick Cheney of recent veep and prez candidates has been so clouded in secrecy), and as a presidential candidate's independently wealthy wife.  She foolishly tried to justify not giving out her tax returns as protecting the privacy of her children, which simply doesn't hold water since everyone knows her children will inherit enormous wealth, and ultimately released just 2006's front pages in a "hollow, symbolic gesture intended to placate" considering that "Schedule E is where the action is...and it has not been disclosed". Lee A Sheppard, McCain's Wife Releases Some Return Information, 119 Tax Notes 908, June 2, 2008. That's not exactly an open and transparent response to the American public's right to understand the finances of their presidential aspirants.  She needs to release ten years' returns, including the schedules that tell us something informative about her wealth.  It isn't clear why the media hasn't followed up to insist on her disclosing 10 years worth of full returns, other than the fact that the media has gotten used to swallowing an awful lot of baloney without any questions during the past 8 years.

Along that line, one of my readers sent me his own speculation about the use of offshore accounts, which I share with his permission below.  Obviously this is speculation, but it does, again, support journalists asking Mrs. McCain more about her refusal to release meaningful returns.

Perhaps my imagination is running wild, but this story [about the UBS and Liechtenstein offshore accounts] suggests that the reason behind Cindy McCain's refusal to fully disclose her income tax returns is that either she or trusts of which she is a beneficiary ,or other entities in which she has an interest, have moved assets offshore in a way that is abusive or, at the least, embarrassing. (For instance, her attacks on Michelle Obama would seem rather hollow if it were known that she either actively took steps or even merely benefited from such tax evasion/avoidance schemes.)  Let's review the facts:

1. Cindy McCain is very wealthy, with a net worth estimated at $100 Million.

2. UBS had a program, targeted at very wealthy individuals, that hid money and other assets offshore to evade US income taxes. What does "very wealthy" mean? Apparently, the targeted group were those individuals with a net worth of over $10 Million. There are between 400,000 and 500,000 such individuals in the US. Doing some quick, back of the cocktail napkin calculations, assuming that the 19,000 figure is correct, about 4% of all of these wealthy individuals were committing this particular type of tax fraud with this particular bank.

3. Phil Gramm has been closely identified with the McCains for many years. Currently, Gramm is McCain's campaign chair and an economic advisor to the campaign. Beginning in 2003, Gramm began to lobby on behalf of UBS. Today, he is a vice-chairman of UBS Investment Bank. (Note: This is not the UBS division that is involved in the offshore asset hiding scandal. That's the private wealth division.)

4. Because she only disclosed the first two pages of one year's return, it is impossible to determine whether Cindy McCain has now or had in the past hidden assets offshore. One would have to examine returns for a number of years (most other candidates have typically disclosed 10 years of returns) to see whether there have been significant dips in income. For instance, it would be suspicious on anyone's return if a trust typically generated substantial income and then, suddenly, generated little or no income. (BTW, the claim that by disclosing her returns she would be violating the privacy of her children is plainly pretextual. It only withstands the scrutiny of the media because the media lack any technical expertise to call it for the baloney that it is.)

5. Mrs. McCain's financial behavior in the past has been problematic: high credit card interest payments; failure to pay taxes on real property; her investment, with her father, in 1986 of $359,100 in a Charles Keating shopping center before the Senator intervened on Keating's behalf, etc. (And Sen. McCain's opposition to full disclosure by his wife is reminiscent of his response when reporters questioned him about the Keating investment. "You're a liar" McCain said when a Republic reporter asked him about the business relationship between his wife and Keating.  "That's the spouse's involvement, you idiot" McCain said later in the same conversation. "You do understand English, don't you?"  He also belittled reporters when they asked about his wife's ties to Keating.  "It's up to you to find that out, kids." See mediamatters.org. )

Full disclosure of all of Mrs. McCain's returns for the last 10 years is essential. Short of that, reporters might simply ask her: Have you or any trusts of which you are a beneficiary or any entities in which you had an interest ever had offshore accounts? Then, follow-up.

Comments

[andy]

I don't understand the need to make either woman (Cindy McCain or Michelle Obama) a campaign issue. Leave them alone.

And I don't understand why one would feel entitled to view another's tax returns. To act indignant -- even when one does not show his or her own returns -- strikes me as childish. Bloggers should post their own tax returns before complaining about the apparent "secrecy" women who are not even running for office.

All of this is particularly odd given the outcry over the potential for sharing private taxpayer information when "privatizing" some tax collection activities. Either someone is for 6103 or s/he's not. That some have no qualms about shaming persons whose outlook they disagree with -- as appears to be the case here -- is the reason we have confidentiality protections to begin with. Sad.

[LindaMBeale]

Come on, Andy, you surely must admit that the finances of presidential candidates are relevant, and that means their spouses as well as themselves. We have pretty well established an expectation that presidential and vice presidential candidates reveal their full personal finances as part of the vetting that is reasonable in today's global financial age. John Kerry was in a similar situation--his wife is a high profile heiress, and people rightly demanded that she release her tax returns as being relevant to a full picture of the candidate. It's hard to justify any candidate or candidate spouse not doing so.

Why should a candidate's spouse be beyond the purview of voters? You broach your objection almost as though it were one based on feminism, but in fact it supports the old view that wives are just appendages that can be ignored. In fact, spouses have tremendous influence and voters need to have a full perspective on the candidate, which means that a spouse's activities and comportment are relevant.

The private debt collection privacy issue is quite different. There, you have large numbers of individuals who haven't exercised the option of releasing their returns whose returns are in the hands of private agencies that do not have the same obligations towards the taxpayers as the government agency employees have. This is so different that it looks like you are trying to send up a red herring to justify your defense of McCain's secrecy about her returns.

At the moment, our rules allow individuals to release their returns, and certainly allow journalists, bloggers, tax professors and interested citizens to set forth the reasons why seeing particular returns might be of interest. Our rules do not allow private companies to release returns, and thus the concern about private collection agencies, whose oversight costs have mushroomed far beyond expectations, revenues have proved far less than expected, and which offer a real danger of breaching the privacy currently provided under the tax laws.

There are certainly a number of good arguments for and against the current law that protects the confidentiality of private returns. I think personally that the arguments weigh in favor of requiring release of all corporate returns (with limited information permitted to be redacted), and possibly of all partnership and sole proprietor returns.

[John Freeland]

"I don't understand the need...Leave them alone."

The need is have the voters understand a particular candidate's philosophy toward tax policies. Will they be fair? It also is germane to the candidate's views toward foreign policy and international finance rules.

I'm still not satisfied with McCain's "Citizen McCain" mostly secret "release" of his medical records. We're seeing a pattern of secrecy that says "the little people don't need to know. It's none of their business." And lots of folks, like Andy, seem ok with that.

If the McCains don't like the public disclosure, then they should stay in the private sector.

[andy]

"If the McCains don't like the public disclosure, then they should stay in the private sector."

That's a tenable policy position, and the right way to implement it is to propose legislation requiring disclosure of public candidates' finances. Unleashing attacks at Theresa Heinz Kerry or Cindy McCain is not appropriate.

[andy]

"There are certainly a number of good arguments for and against the current law that protects the confidentiality of private returns. I think personally that the arguments weigh in favor of requiring release of all corporate returns (with limited information permitted to be redacted), and possibly of all partnership and sole proprietor returns."

I agree that disclosure of corporate returns is a good idea, so long as there are exceptions for smaller companies. Certainly every publicly traded company should release its return. My broader concern is how the IRS (or others) can wade through the thousands of pages of schedules, etc., and find things that are "fishy." The IRS's enforcement budget should be doubled.