Tuesday, April 5, 2016

PANAMA PAPERS: A POSSIBLE TREASURE TROVE FOR THE IRS AND WORLD-WIDE TAX ENFORCEMENT: WHO NEEDS FATCA?

http://banker.az/wp-content/uploads/2013/12/offshore-banking-investing-beach1.jpg
The impact of the Panama Papers mega-news story is being absorbed with lightning speed around the globe. The tax compliance community is going to feel the ripples for the next several years. The real story is not so much the disclosure of world leaders whose names show up on the lists, but rather the fall-out to the secondary level of people who will be exposed as tax authorities around the world begin their investigations. The mistaken belief of any tax cheat that no one would ever find out about their honey pot in the Cayman Islands or the fake corporations they formed in the British Virgin Islands is not based in reality.  

As this story unfolds, the IRS and its world-wide FATCA- friendly partners are in year six of implementing FATCA, a law passed in 2010. The law requires almost all of the banks in the world to register with the IRS if they want the privilege of earning, moving, or even touching U.S. source income. FATCA seeks to create, with the blessing and cooperation of dozens of other nations, including China, Russia and Middle Eastern countries, an international banking and financial database. The purpose of the data base is to enable the respective FATCA-friendly countries to track compliance of their respective citizens.


How ironic in this age of FATCA, Big Government is handed on a silver platter enough work to keep them so busy for the next few years, they may want to put FATCA on hold for a while. It would appear from the news stories that tax law enforcement worldwide has been given a huge gift. This treasure trove of data is likely to turn up the names of a few Americans. If so, this latest leak could be a windfall for the IRS. So far, it appears only one U.S. person is directly named.


In the netherworld of offshore tax evasion, financial investigators spend their days connecting dots that start in the Caribbean and lead to tax evaders all over the world including in Iceland, Moscow, and New York. There are some clear U.S. connections with entities formed in Nevada, meetings in the U.S., the Mossack Fonseca firm’s U.S. presence, etc.


Forget any talk about the fact that these documents may have been obtained illegally. For practical purposes, if the names and information are out there in the public domain for all to see, the IRS and other law enforcement agencies are entirely free to use it to get information on taxpayers who are guilty of cheating on their taxes through the use of offshore accounts regardless of the source. As long as the IRS had no hand in any act to illegally obtain the Panama Papers, all the IRS needs is a name of an individual or entity with the slightest U.S. connection. They know what to do next!


Welcome to the fallout from the Panama Papers. Now, who needs FATCA?