An investigative arm of the U.S. Congress has found that tax penalties levied by the Internal Revenue Service against U.S. companies complying with the Arab economic boycott of Israel “appear to be small.”
Forty-four U.S. companies complied with the Arab economic boycott of Israel in 1986, and paid penalties to the IRS worth $2.85 million, the General Accounting Office reported last week.
The 44 companies signed 1,442 different agreements with Arab countries in 1986, said the GAO report. By contrast, 212 companies signed 1,995 boycott agreements in 1982, the second most recent year for which figures are available.
The GAO called the loss of tax benefits “small.” Of the companies paying penalties, 26 had assets of at least $1 billion.
Don Roberts, an IRS spokesman, said Tuesday that he was unaware of the GAO report and had no comment.
While chances for an increase in tax penalties in boycott cases seem small, an increase in the Commerce Department’s civil penalties seems more likely.
Commerce Secretary Robert Mosbacher announced July 9 that his agency is in favor of increasing the maximum penalty from $10,000 to $50,000. The higher penalty may be included in the 1992 Export Administration Act.
Commerce Department boycott penalties totaled $830,000 last year.
The Anti-Defamation League, the American Jewish Committee and other Jewish groups have met with Mosbacher to endorse a penalty hike.
They have not done the same with the Treasury Department because, unlike the penalties which may be imposed by the Commerce Department, there are no “caps” on IRS penalties, said Jess Hordes, ADL’s Washington representative.
NEED TO ‘TIGHTEN UP’ TAX CODE
But Hordes said that based on the GAO report, ADL will review IRS penalties “to see whether we can tighten up the (tax) code.”
For example, Hordes agreed with Rep. Charles Schumer (D-N.Y.) in terming as a “loophole” the provisions of the tax code that allow companies paying foreign taxes on boycott-related foreign earnings to deduct that amount on their U.S. income tax returns.
The GAO report was requested last September by Sen. John Heinz (R-Pa.), who died in a plane crash in April.
U.S. companies are required to report their business activities in 12 Arab League countries that honor that boycott: Bahrain, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.
Where U.S. companies comply with the boycott, the IRS is supposed to deny tax benefits, including credits or exemptions for foreign taxes.
The IRS annually audits about 11 percent of all special boycott reports required of U.S. companies, the GAO said. It investigated an average of 350 businesses in each of the years 1983 and 1984 and in neither year did it fine or prosecute a company for failing to file its report on time.
In 1986, 533 companies reported that they were asked to participate in the boycott, and 44 said they agreed to observe it. Of the 44, 40 said they lost U.S. tax benefits.
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