U.S. Taxpayers who directly or indirectly controlled foreign financial accounts in 2015 are reminded that the deadline to file a Report of Foreign Financial Account (FBAR) FinCEN Form 114 is June 30. Taxpayers with unfiled FBARs for prior years should be aware of that the information exchange agreements under the Foreign Account Tax Compliance Act have bee implement:
Since 2009, the Offshore Voluntary Disclosure Program (OVDP) has been available to Taxpayers who have foreign assets, foreign financial accounts, and foreign source income unreported for U.S. Income Tax and Bank Secrecy Act purposes. In addition, in June of 2014 the IRS announced the Streamlined Procedures to further encourage Taxpayers to come forward and remedy prior failures to disclose foreign assets and foreign income. With the release of Panama Papers, those U.S. citizens and permanent residents who did not take advantage of the OVDP and the Streamlined Procedures, an IRS civil audit may be in the horizon. There is also risk of criminal investigation relating to the foreign offshore holdings.
Panama Papers To Be Released May 9, 2016. Why Does It Matter? The International Consortium of Investigative Journalists (ICIJ) will release perhaps the largest database of private offshore companies and their ultimate owner ever made public. According to the ICIJ
"The data comes from the Panamanian law firm Mossack Fonseca, one of the top players in the offshore world, and includes information about companies, trusts, foundations and funds incorporated in 21 tax havens, from Hong Kong to Nevada in the United States. It links to people in more than 200 countries and territories. When the data is released, users will be able to search through the data and visualize the networks around thousands of offshore entities, including, when possible, Mossack Fonseca's internal records of the company's true owners. The interactive database will also include information about more than 100,000 additional companies that were part of the 2013". To understand who is likely to be affected by the release of the Panama Papers it is perhaps worthwhile to look at who may have benefited from the use of offshore companies and how. The ICIJ has an interactive depiction of hypothetical persons who would use offshore companies. https://panamapapers.icij.org/stairway_tax_heaven_game/. There are three hypothetical scenarios shown involving (i) a professional athlete, (ii) a politician and (iii) a business executive. There are clearly many more real life situations than those illustrated. The number of U.S taxpayers whose names are going to be found in the database is unknown, but criminal investigations have already begun. The U.S. Attorney for the Southern District of New York recently announced that he has opened a criminal investigation, and 13 foreign banks have been formally asked to produce records by the New York Department of Financial Services. For some U.S. taxpayers these investigations may preclude acceptance into the Offshore Voluntary Disclosure Program,(OVDP) because the government may claim lack of timeliness (they are simply too late). Form some other U.S. taxpayers, who chose to use the Delinquent Filing Program or the Streamline Procedure they may find that they are the target of IRS and/or Department of Justice enforcement actions. The only U.S. taxpayers who have offshore corporations who are reasonably secure are those who have always been in full compliance with tax and Bank Secrecy laws or who came forward through the OVDP process and have a Closing Agreement. The IRS is still receptive to taxpayer's coming forward: "People hiding assets offshore should recognize the continued changes and progress in the international tax arena" and "come forward voluntarily," the IRS said in a statement. "The IRS welcomes the OECD's support of the JITSIC's work to coordinate the effort by tax authorities across the world to respond to the released information. We will be closely monitoring the situation along with our international tax administration partners as we determine what steps to take to ensure compliance with U.S. tax laws and meet our shared global interests". How to come forward needs careful analysis by lawyers skilled in all aspects of voluntary disclosures. Communication between lawyers and clients are generally covered by the attorney-client privilege, whereas communications with others are not privileged in criminal investigations. We at Millarlaw are experts in all aspects of voluntary disclosures, both federal and state. Your inquires are welcome.
California has a multi-agency task force known as the Revenue Recovery and Enforcement Team that was established to attack criminal tax evasion. The stated goals of the team are:
The reports of a massive leak of confidential client information from files of the Mossack Fonseca & Co., law firm could have far ranging effects from intelligence, law enforcemnet and commercial perspectives. The intersting thing about this data leak, is that it appears not to be Internet based, but rather the result of actions taken at the law firm by a person or person unknown.
What happens when The IRS attacks your offshore asset protection plan? The simple answer is you may face a variety of civil and criminal investigations and penalties. What constitutes an offshore asset protection plan?
Individuals suffering from mental illness or the effects of substance abuse may have a "reasonable cause" for penalty relief. Example, an indivdual who is suffering from chonic drug dependency who may have been in and out of rehab facilities, (think of any number of celebrities) or an individual with a degenerative mental condition such as Alzheimer's . These individuals may have intermittent periods during which they are awre of their obligations to file timely income tax and information returns (such as a Report of Foreigin Gift, or Inheritance, Report of Foreign Bank Account, FBAR, Report of Foreign Trust), but because of their impairment do not do so. At some point, they may obtain the assistance of a tax professional to seek penalty relief. The tax professional will have to accumulate and/or reconstruct the financical records of the client in order to have accurate returns prepared and penalties abated.
The Tax Crimes Handbook of the Office of Chief Counsel, Criminal Tax Division of the Internal Revenue Service defines "Willfulness " as follows:
Justice Scalia is known as an "originalist" in interpreting the Constitution. An "originalist" is someone who looks to the language of the Constitution to find authority for an interpretation being proposed and who finding none would deny the requested relief. An example of how his "originalist" approach was used in tax cases is found in his dissent in the 2015 case of The Controller of the Treasury of Maryland v. Wynne. This case involves an important tax apportionment issue between income earned in state and out of state."
The formal IRS/Department of Justice (DOJ) Swiss Bank Program has concluded with 80 Swiss banks coming forward. The banks agreed to provide information about personnel, depositors and advisors who were participated in or assisted U.S. taxpayers in offshore tax evasion. In addition to disclosure and cooperation with investigations each of the banks paid substantial penalties. In exchange for the disclosures, cooperation and penalties, the banks received Non-prosecution agreements. But let there be no mistake, the offshore tax program is far from over. There is substantial political pressure on the IRS and DOJ and exemplified by the recent statement of Senator John McCain.