01/03/2009 05:12 am ET | Updated May 25, 2011

A Bailout For Tax Evaders??

The New York Times today reports that the IRS is debating how to deal with blatant tax evaders. It reports that, through the help of UBS, a number of US taxpayers hid an approximate $20 billion of profits in secret offshore accounts which enable them to evade $300 million in taxes from 2000 to 2007. (A UBS banker has already pled guilty for participating in these schemes.) Credit Suisse and HSBC helped other US taxpayers hide up to $30 billion of profits.

The Times reports that the IRS is debating whether to offer reduced penalties and possibly reduced tax payments to the evaders or to impose much higher penalties (50% of the hidden profits for each year).

In other tax shelter transactions, the IRS has in the past often offered reduced penalties and tax payments to settle the cases. Often there are so many taxpayers involved that the time and effort on the part of IRS personnel makes pursuing each individual case impractical. But those cases are different. In most, the taxpayers were advised by tax professionals that they had legitimate positions for engaging in the transaction and reducing their tax liabilities. The professionals' advice often bordered on incredulous and it was often hard to believe that astute business people would actually think the advice was legitimate, but at least there was some possibility that the taxpayers didn't know they were doing wrong.

There is no question mark in these cases. These taxpayers blatantly conspired with the bankers to move their profits offshore, hide them in secret bank accounts, and not report the profit to the IRS in any manner whatsoever. And they did so even though they were able to earn their millions and billions because of America's economic system and even though they benefit from the vast services and benefits delivered by our government.

Many of our most wealthy citizens appreciate that they have been able to accumulate their wealth because they are American and they proudly pay their fair share of taxes; some (Vice-President Elect Joe Biden for example) would call them patriotic. If the rule of law is to have any meaning, the tax cheats who accumulate wealth as Americans and then engage in blatant and fraudulent schemes to avoid taxes on that wealth should not get any break from prosecution. While this will certainly impose more work on IRS and Justice Department personnel, it is imperative that taxpayers who would consider such schemes in the future know that they risk paying a very, very high price.