Panama Papers Database Release Shows the Dangers of Undisclosed Offshore Accounts

There are an array of reasons why Americans and U.S. taxpayers keep or maintain authority over offshore accounts. For some American expats, keeping assets overseas is not only a matter of convenience but also a means of ensuring that he or she has access to assets as part of everyday life. The simple fact of the matter is that for people living outside of the United States, having money and assets in foreign banks and other foreign accounts is a natural and probable outcome of living overseas. Another common reason why U.S. taxpayers keep foreign accounts is because they still have family members overseas. These accounts can be used to send remittances to family members or to provide access to assets when returning to visit.

However, regardless of a United States taxpayer’s reasons for keeping money overseas, he or she is not permitted to have secret offshore accounts or undisclosed accounts. Furthermore, with a few exceptions, the taxpayer is required to pay taxes on income received from interest and dividends received from these foreign accounts. Some people believe that undisclosed accounts are likely to remain secret and thus shielded from IRS enforcement actions and penalties. Unfortunately, this assumption is unfounded and can result in significant penalties and consequences.

Continued Pentagon Papers Leaks Shows that No Account is Truly Secret

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On May 9, 2016, a comprehensive database of all individuals listed in the Panama Papers leak was released publicly on the Internet. The database reveals the true identity of owners of more than 200,000 foreign trusts, companies, and other entities. These offshore entities were set-up by Panamanian law firm Mossack Fonseca for wealthy Americans and connected individuals throughout the world. The law firm set up secret offshore entities for an individual for an array of purposes including shielding for legitimate investment and business development purposes and for improper proposes like  assets due to a divorce or other litigation or tax evasion.

While the individuals who engaged these services likely believed that the money and assets were untraceable, the simple fact is that no account is every truly secret. This leak shows on means by which previously secret offshore accounts can be exposed to the public. Unfortunately for holders of undisclosed offshore accounts, there are an array of other means by which these accounts can be revealed to regulators and tax enforcement agencies.

IRS and DOJ Have Invested Significant Manpower and Resources to Offshore Tax Enforcement

While the duty to file Report of Foreign Bank and Financial Accounts (FBAR) has been a duty since the 1970s, enforcement efforts were only significantly enhanced in relatively recent years. While FBAR is a significant part of the offshore enforcement regime, it was the passage of the Foreign Account and Tax Compliance Act (FATCA) that truly spurred the development of today’s offshore disclosure regime.

With the passage of FATCA, the U.S. government focused significant amounts of resources on closing the tax gap. Congress believed that main cause of the tax gap was offshore tax evasion by wealthy American.  Therefore, following the passage of FATCA, the U.S. government negotiated FATCA Intergovernmental Agreements (IGA) to facilitate the exchange of tax and financial information with foreign governments throughout the world. To date, there are more than 100 FATCA IGAs in place that allows the United States to obtain foreign financial data.

Aside from these international agreements, the Department of Justice has also gathered significant amounts of foreign financial information and secured cooperation and compliance with foreign financial institutions through efforts like its Swiss Bank Program. Through the program, the U.S .government has obtained significant amounts of offshore account data from global financial institutions with headquarters or branches in Switzerland.

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The Risk of Undisclosed Offshore Account Discovery Has Never Been Greater

In light of the government resources devoted to uncovering secret and undisclosed foreign accounts and the potential disclosures of account data by private actors, the risk of account discovery has never been greater. The penalties for FATCA and FBAR violations are harsh. For instance, even an inadvertent failure to disclose under FBAR could result in a penalty of up to $10,000. Failures to disclose in multiple tax years can result in multiple charges.

Contact US Tax Accountant Ted Kleinman for Help With Your Tax Matters

While Congress may have only intended to target wealthy Americans, the truth is that many expats now have foreign disclosure duties and may be subject to significant penalties for failures to disclose foreign accounts and assets. Complying with these obligations can be complex and multifaceted. US tax accountant Ted Kleinman of US Tax Help is dedicated to assisting expats and U.S taxpayers comply with all tax duties and obligations. To get started with a no cost review of your tax situation schedule an appointment today or contact US Tax Help online.