Obama wants to raise $200 billion by closing offshore tax loopholes

The Obama administration will unveil its plan to close offshore tax avoidance loopholes today, which target both U.S.-based multinational corporations and wealthy individuals, according to The Wall Street Journal. Up until now, the administration's main focus has been wealthy individuals who hide assets in foreign banks, the primary example being the ongoing IRS case filed against UBS.

The new plan, if passed by Congress, could raise up to $200 billion by closing four loopholes:

  • Curb the practice known as "deferral," where companies defer taxes indefinitely on many of their profits by leaving them in overseas banks and avoiding taxes until the money is repatriated back to the U.S. The administration expects to raise $60.1 billion through 2019.
  • Revise "check-the-box" rules that allow companies to decide where their subsidiaries should be taxed, which enables companies to take advantage of low-tax haven countries. The administration estimates this change could raise $86.5 billion through 2019.
  • Toughen rules on the use of tax credits granted to companies to offset taxes paid to foreign governments. The administration estimates increased tax collections of $43 billion through 2019 with this change.
  • Crack down on offshore individual bank accounts. The plan would increase information reporting and tax withholding as well as penalties to make it harder for foreign account-holders to win cases in court. The administration estimates increased tax collection of $9 billion through 2019.

The two industries that will be hardest hit by these changes are the pharmaceutical and technology industries. John Earnhardt, a spokesman for Cisco (CSCO), told the Journal, "If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S." He went on to say that this change will make it harder "to compete against foreign competitors who are not subject to this U.S. tax."

The administration believes that current tax loopholes encourage multinationals to move jobs overseas. Instead the administration wants to use this tax plan to increase incentives for job creation in the U.S. Some of the tax collections will be used to cover the cost of extending the soon-to-expire federal tax credit for research costs.

By adding the tax incentives to the program, the administration may find it easier to get this legislation through the Congress. But do expect major business opposition to water down the bill.

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.

How Do I File Back Tax Returns?

It's never too late to file your taxes. Here's how to file your back tax returns in five simple steps.

Read More

Brought to you by TurboTax.com

Charitable Contributions You Think You Can Claim but Can't

Knowing what you can and can't claim as charitable contributions helps you maximize the potential tax savings that the charitable tax deduction offers.

Read More

Brought to you by TurboTax.com

Filing Your Taxes Late

What do you do if you can't meet the IRS filing deadline? Learn more about filing a tax extension, late payment and late filing penalties, and what to do if you can't pay your taxes.

Read More

Brought to you by TurboTax.com

Deducting Health Insurance Premiums If You're Self-Employed

Most self-employed taxpayers can deduct health insurance premiums, including age-based premiums for long-term care coverage. Write-offs are available whether or not you itemize, if you meet the requirements.

Read More

Brought to you by TurboTax.com
Read Full Story
Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.