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Tax Evaders Use False Import, Export Prices

November 05, 2002|From Bloomberg News

U.S. companies and individuals avoided more than $50 billion in taxes last year by falsely reporting prices for imports and exports, according to a study that says the practice may be helping terrorists.

Toilet paper from China was declared to be worth $1,873 a pound, and prefabricated buildings valued at $1.20 each went to Trinidad, according to finance professors John Zdanowicz and Simon Pak, who are advising the Treasury Department.

"Most of it is companies and individuals moving money for illicit or illegal purposes, including tax evasion and perhaps terrorist financing," said Zdanowicz, who teaches at Florida International University in Miami.

More than $150 billion in taxable income was shifted outside the U.S. through overpayment for imported goods and undercharging for exports, the study said. The practice has accelerated in recent years as taxpayers looked for alternatives to loopholes that are being closed worldwide, the study said.

The cost to the U.S. Treasury has almost doubled since 1992, the first year that the pair began analyzing the data, and has risen almost 20% since 2000, said Zdanowicz and Pak, who teaches at Pennsylvania State University-Great Valley.

The figure probably will rise faster now that the Patriot Act, passed by Congress this year to help fight terrorism, has given government broad new surveillance powers related to financial transactions, Zdanowicz said.

"The government has shut down the front door to moving money offshore, but they've left the back door wide open: the trade account," he said.

The chances of government scrutiny are slim, Zdanowicz said. U.S. Customs Service figures that were used in the study detail neither the companies nor the individuals behind each transaction. "There are 54.9 million transactions each year, and no one can expect Treasury or Customs or the IRS to look at every one of them," he said.

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