Foreign Account Tax Compliance Act (FATCA)

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Treasury/IRS Issue Proposed Regulations to Ease FATCA Compliance Burdens

By Matthew D. Lee on December 13, 2018

Posted in Foreign Account Tax Compliance Act (FATCA)

In response to Executive Orders requiring a broad federal review of existing regulations, Treasury and IRS issued this morning proposed regulations easing certain compliance burdens imposed on foreign financial institutions and withholding agents by the Foreign Account Tax Compliance Act (FATCA) regime.

The proposed regulations would eliminate withholding on payments of gross proceeds, defer withholding on foreign passthru payments, eliminate withholding on certain insurance premiums, and clarify the definition of investment entities. They also provide guidance on certain due diligence requirements of withholding agents and clarify procedures for refunds and credits of amounts withheld.

The announcement notes that Treasury and the IRS have received substantial comments from stakeholders about the mammoth compliance burdens imposed by the FATCA regime, and that given the high level of FATCA compliance worldwide that has been achieved to date, some of the more onerous FATCA regulatory requirements can be eased. Foreign financial institutions and withholding agents will no doubt welcome these proposed regulations.

We will publish additional analysis of the proposed regulations in future posts.

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IRS Issues Reminder of Upcoming FATCA Compliance Certification Deadline

By Matthew D. Lee on November 29, 2018

Posted in Foreign Account Tax Compliance Act (FATCA)

Today the IRS published a reminder to foreign financial institutions and their compliance officers that certifications required by the Foreign Account Tax Compliance Act (FATCA) are due no later than December 15, 2018. This is the first compliance certification deadline under the FATCA reporting regime, which became fully effective as of July 1, 2014. Institutions that fail to comply with this certification deadline will be deemed non-compliant for FATCA purposes and may face revocation of their FATCA status and removal from the FFI list. The full text of the IRS’s reminder follows:

The FATCA Certification Deadline is Approaching – Please Complete Your Certifications by December 15, 2018

For the certification period ending December 31, 2017, FATCA certifications are due no later than December 15, 2018. However, for trustees of trustee-documented trusts and sponsoring entities, the deadline is March 31, 2019.

If an entity that is required to certify does not submit its certifications by the due date, the entity will not be in compliance with its obligations under FATCA. The consequences of being non-compliant may include the revocation of an entity’s FATCA status and, ultimately, the entity’s GIIN being removed from the FFI list.

Ensure that your registration information is current or update as needed for:

– Your FATCA Classification, and

– The Name and Email address of your Responsible Officer (RO) and Point of Contact (POC)

The Responsible Officer or Point of Contact must log into their account and ensure that the entity’s FATCA classification reflected is accurate. Please review and confirm the entity’s FATCA classification, even if you do not have a certification requirement.

In addition, your FATCA registration must always be updated with the current name and email address of your RO and POC as soon as there is a change.

The RO and POC information provides the IRS with the name and contact information of persons with whom they will communicate for reasons including but not limited to certifications, general inquiries and other FATCA compliance purposes. You are responsible for ensuring that you can receive email and message notifications from the IRS. The IRS will send notices to your registration system message board for the reasons noted above and to give you a notification of potential actions to be taken on your account. Your RO will also receive an email notification when the IRS has sent a notice to your message board. It is your responsibility to make sure that you receive and review any messages sent to your message board and to ensure that your RO’s email address is accurate.

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Transparency Tide or Tsunami? The New Wave of Global Reporting Rules and IRS Tools To Unearth Foreign Financial Accounts

By Matthew D. Lee on November 28, 2018

Posted in Foreign Account Tax Compliance Act (FATCA), Foreign Bank Account Reporting (FBAR)

On December 12, 2018, Matthew D. Lee will participate in a ABA Tax Section webinar entitled “Transparency Tide or Tsunami? The New Wave of Global Reporting Rules and IRS Tools To Unearth Foreign Financial Accounts.” This webinar will address the latest developments with respect to the foreign financial asset reporting rules and recent offshore tax enforcement efforts by the Internal Revenue Service and the Justice Department. More details are available here.

Despite Closure of OVDP, Offshore Tax Evasion Crackdown Marches On

By Matthew D. Lee on October 31, 2018

Posted in Foreign Account Tax Compliance Act (FATCA), Foreign Bank Account Reporting (FBAR), Internal Revenue Service (IRS), IRS Criminal Investigation (CI) Division, IRS Offshore Voluntary Disclosure Program (OVDP), U.S. Department of Justice (USDOJ), USDOJ Swiss Bank Program

On September 29, 2018, the Internal Revenue Service closed for good the long-running Offshore Voluntary Disclosure Program (OVDP), its hugely successful tax amnesty program for undisclosed offshore financial assets. Since March 2009, the IRS has maintained an offshore voluntary disclosure program in some form or fashion, and more than 56,000 taxpayers have taken advantage of such programs to voluntarily return to tax compliance. The U.S. Treasury has collected a whopping $11.1 billion in back taxes, interest, and penalties from taxpayers participating in the OVDP. The IRS’s decision to close the OVDP last month was driven by declining participation in the program, falling from its peak in 2011, when about 18,000 taxpayers came forward, to only 600 disclosures in 2017.

The closure of OVDP does not, however, mark the end of the U.S. government’s crackdown on offshore tax evasion. To the contrary, IRS and Justice Department efforts to combat noncompliance in this area continue to be aggressive, as evidenced by public announcements by both just yesterday.

First, the Justice Department announced the guilty plea of yet another taxpayer with an offshore bank account. A California resident pleaded guilty to maintaining a secret bank account containing millions of dollars at Bank Leumi in Israel. According to the Justice Department’s press release, the taxpayer had an account at Bank Leumi from 1994 to 2011. In 2011, he closed that account and moved $2.4 million to another Israeli bank. The taxpayer also had undisclosed accounts at other bank in three different countries, each with a balance exceeding $1 million.

In December 2014, Bank Leumi entered into a deferred prosecution agreement with the Justice Department, pursuant to which the bank admitted to conspiring from at least 2000 until early 2011 to aid and assist U.S. taxpayers in preparing and presenting false tax returns by hiding income and assets in offshore bank accounts in Israel and other foreign locations. Under the terms of the deferred prosecution agreement, Bank Leumi paid the U.S. government a total of $270 million and is continuing to cooperate with respect to ongoing civil and criminal tax investigations.

Next, the IRS’s Large Business and International Division – responsible for, among other things, conducting audits of taxpayers with international activities – announced that it was adding two more offshore-focused campaigns to its growing list of “compliance campaigns.” LB&I is moving toward issue-based examinations and the compliance campaigns represent the issues identified by LB&I that present the greatest risk of tax noncompliance. A number of the previously-announced issue-focused campaigns center on offshore issues, such as the “OVDP Declines-Withdrawal Campaign” – which targets taxpayers who entered OVDP but later declined to participate or withdrew from the program – and the “Swiss Bank Program Campaign” – which leverages the legacy phase of the Swiss Bank Program by utilizing the mountain of data handed over to the Justice Department by the 80 participating Swiss banks.

The two new offshore-based campaigns unveiled by LB&I yesterday focus on offshore service providers and FATCA filing accuracy. The “Offshore Service Providers” campaign addresses taxpayers who utilized the services of offshore service providers to create foreign entities and structures to conceal the ultimate beneficial ownership of offshore assets. Perhaps the most well-known offshore provider in this area is the Panamanian law firm Mossack Fonseca of “Panama Papers” fame, but there are plenty of other firms throughout the world who catered to U.S. taxpayers and whose interactions with such clients will be the subject of this campaign.

The second campaign announced yesterday – entitled “FATCA Filing Accuracy” campaign – will focus primarily on the accuracy of annual reporting by offshore financial institutions required by the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010, and effective as of July 1, 2014, FATCA requires foreign financial institutions and related offshore entities to annually disclose to the IRS the identities of their U.S. customers, or face severe financial penalties in the form of 30 percent withholding on U.S.-source payments. This campaign will presumably focus on the accuracy of the annual FATCA disclosures made by offshore financial institutions, with the potential penalty for noncompliance being termination of FATCA-compliant status.

These two latest developments – announced on the same day by the Justice Department and the IRS – should dispel any suggestion that the U.S. government may be ramping down its offshore tax compliance agenda in the post-OVDP world. By all accounts both the Justice Department and the IRS will continue to aggressively press their enforcement efforts in this area, both civilly and criminally (where appropriate). At the same time, even in the absence of OVDP, other voluntary disclosure options still exist for taxpayers seeking to come clean. Taxpayers with noncompliant offshore financial assets who fail to take prompt action do so at their peril.

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Offshore Bankers Beware: Justice Department Secures First-Ever Criminal Conviction for Violating FATCA

By Matthew D. Lee on September 12, 2018

Posted in Foreign Account Tax Compliance Act (FATCA), Internal Revenue Service (IRS), Tax Evasion, U.S. Department of Justice (USDOJ)

In a move sure to send shock waves through the offshore banking community, the Justice Department yesterday announced its first criminal conviction for violating the Foreign Account Tax Compliance Act (FATCA). Adrian Baron, the former Chief Business Officer and Chief Executive Officer of Loyal Bank Ltd, an offshore bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines, pleaded guilty in Brooklyn federal court to conspiring to defraud the United States by failing to comply with FATCA. A resident of Hungary, Baron was extradited to the United States in July 2018.

Enacted by Congress in 2010, FATCA is a federal law that requires foreign financial institutions to identify their U.S. customers and to annually report information about financial accounts held by U.S. taxpayers either directly or through a foreign entity. FATCA’s primary aim is to prevent U.S. taxpayers from using foreign accounts to facilitate offshore tax evasion.

According to court documents, in June 2017, an undercover agent met with Baron and explained that he was a U.S. citizen involved in stock manipulation schemes and was interested in opening multiple corporate bank accounts at Loyal Bank. The undercover agent informed Baron that he did not want to appear on any of the account opening documents for his bank accounts at Loyal Bank, even though he would be the true owner of the accounts. Baron responded that Loyal Bank could open such accounts and provide debit cards linked to them.

In July 2017, the undercover agent again met with Baron and described how his stock manipulation scheme operated, including the need to circumvent the IRS reporting requirements under FATCA. During the meeting, Baron stated that Loyal Bank would not submit a FATCA declaration to regulators unless the paperwork indicated “obvious” U.S. involvement. Subsequently, in July and August 2017, Loyal Bank opened multiple bank accounts for the undercover agent. At no time did Baron or Loyal Bank request or collect FATCA information from the undercover agent.

Baron’s guilty plea represents the first-ever criminal conviction for FATCA violations obtained by U.S. authorities, and represents an extraordinary development in the relatively short life-span of the FATCA statute. When it was enacted by Congress eight years ago, FATCA was viewed primarily as an information-gathering mechanism, designed to provide the Internal Revenue Service with an annual tranche of data regarding the offshore banking activities of U.S. taxpayers. While foreign financial institutions have provided the IRS with millions of pieces of data regarding foreign banking activity by U.S. taxpayers, it has so far been unclear exactly how the IRS and Justice Department will make use of that data. With the guilty plea of Adrian Baron announced yesterday, it is clear that the U.S. government views FATCA not simply as a vehicle to gather information but also as a predicate upon which criminal charges may rest under appropriate circumstances. FATCA is not simply a “paper tiger,” and the offshore banking community should heed carefully this significant development when doing business with U.S. clients.

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Matthew D. Lee Authors 2018 Update to Foreign Account Tax Compliance Act Answer Book

By Matthew D. Lee on August 28, 2018

Posted in Foreign Account Tax Compliance Act (FATCA)

Fox Rothschild LLP Partner Matthew D. Lee recently authored an updated version of the Foreign Account Tax Compliance Act Answer Book, published by Practising Law Institute. Lee’s book provides a detailed analysis of the international tax compliance regime imposed by the Foreign Account Tax Compliance Act and its impact on foreign financial institutions, withholding agents and U.S. citizens and residents with offshore bank accounts and investments.

In the updated book, Lee describes the latest developments regarding FATCA implementation, including updates concerning the reporting obligations imposed upon foreign financial institutions, the responsible officer compliance certifications required to be filed this year and enforcement efforts by the Internal Revenue Service and the Justice Department.

Lee is a former U.S. Department of Justice trial attorney who concentrates his practice on all aspects of white-collar criminal defense, federal tax controversies, financial institution regulatory compliance and complex civil litigation.

For more information, please contact Lee directly at mlee@foxrothschild.com or visit the PLI website.

About Practising Law Institute (PLI)

Practising Law Institute (PLI) (www.pli.edu) is a nonprofit continuing legal education and professional business training organization, dedicated to providing the legal community and allied professionals with the most up-to-date, relevant information and techniques, through Seminars and Workshops, Live Webcasts, and On-Demand Learning including interactive skills courses in the Interactive Learning Center. PLI publishes comprehensive Treatises, Answer Books and practice-focused Course Handbooks, which are also available through Discover PLUS, our searchable online research database.

Internal Revenue Service Reminds Taxpayers to Report Offshore Bank Accounts on FBAR Form

By Matthew D. Lee on April 12, 2018

Posted in Foreign Account Tax Compliance Act (FATCA), Foreign Bank Account Reporting (FBAR), Internal Revenue Service (IRS), IRS Offshore Voluntary Disclosure Program (OVDP), Streamlined Filing Compliance Procedures, Tax Amnesty, Tax Filing Season

The Internal Revenue Service has issued its annual reminder to taxpayers that they report their foreign assets on their individual tax returns due on April 17, 2018. Individuals with offshore assets such as bank accounts generally have up to three reporting obligations with respect to such assets. First, individuals with foreign bank accounts must answer a series of questions that appear on Schedule B of the Form 1040 tax return. Second, individuals with foreign bank accounts may have to file FinCEN Form 114 (commonly known as the “FBAR” form). Third, individuals with foreign financial assets may have to file Form 8938 (called “Statement of Specified Foreign Financial Assets”) with their tax return. These requirements apply to U.S. citizens and resident aliens (green card holders), including those with dual citizenship. The FBAR form now has the same deadline as individual tax returns (April 17), although an automatic six-month extension is available if more time is needed.

The text of the IRS reminder is as follows:

Deadline for reporting foreign accounts

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is the same as for a federal income tax return. This means that the 2017 FBAR, Form 114, must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) by April 17, 2018. FinCEN grants filers missing the April 17 deadline an automatic extension until Oct. 15, 2018, to file the FBAR. Specific extension requests are not required. In the past, the FBAR deadline was June 30 and no extensions were available.

In general, the filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2017. Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-Filing System website.

Reminder: IRS to end Offshore Voluntary Disclosure Program

The Offshore Voluntary Disclosure Program will close on Sept. 28, 2018. Taxpayers with undisclosed foreign financial assets still have time to use OVDP before the deadline. For further details about the OVDP, see the OVDP FAQs.

The IRS noted it will continue to use tools besides voluntary disclosure to combat offshore tax avoidance, including taxpayer education, whistleblower leads, civil examination and criminal prosecution. The IRS continues to use streamlined filing compliance procedures that will remain in place and be available to eligible taxpayers. But, as with OVDP, the IRS said it may end the streamlined filing compliance procedures at some point. Full details of the OVDP and the streamlined filing compliance procedures are available at Options Available for U.S. Taxpayers with Undisclosed Foreign Financial Assets.

Most people abroad need to file

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income exclusion or the Foreign Tax credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A special extended filing and payment deadline applies to U.S. citizens and resident aliens who live and work abroad. For U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, the income tax filing and payment deadline is June 15, 2018. The same applies for those serving in the military outside the U.S. and Puerto Rico.

Interest, currently at the rate of five percent per year, compounded daily, will apply to any payment received after the regular April 17 deadline. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2017 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens is April 17. See Taxation of Nonresident Aliens on IRS.gov.

Special income tax return reporting for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Specified domestic entity reporting

For tax year 2017, certain domestic corporations, partnerships and trusts that are considered formed for the purpose of holding (directly or indirectly) specified foreign financial assets must file Form 8938 if the total value of those assets exceeds $50,000 on the last day of the tax year or $75,000 at any time during the tax year.

For more information on domestic corporations, partnerships and trusts that are specified domestic entities and must file Form 8938, as well as the types of specified foreign financial assets that must be reported, see Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”? and Form 8938 instructions.

Report in U.S. dollars

Any income received or deductible expenses paid in foreign currency must be reported on a U.S. tax return in U.S. dollars. Likewise, any tax payments must be made in U.S. dollars.

Both FinCen Form 114 and IRS Form 8938 require the use of a Dec. 31 exchange rate for all transactions, regardless of the actual exchange rate on the date of the transaction. Generally, the IRS accepts any posted exchange rate that is used consistently. For more information on exchange rates, see Foreign Currency and Currency Exchange Rates.

Expatriate reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2017 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service, Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates Under Section 877A, for further details.

Choose Free File or e-file

U.S. citizens and resident aliens living abroad can use IRS Free File to prepare and electronically file their returns for free. This means both U.S. citizens and resident aliens living abroad with adjusted gross incomes (AGI) of $66,000 or less can use brand-name software to prepare their returns and then e-file them for free. A limited number of companies provide software that can accommodate foreign addresses.

A second option, Free File Fillable Forms, the electronic version of IRS paper forms, has no income limit and is best suited to people who are comfortable preparing their own tax return. Both the e-file and Free File electronic filing options are available until Oct. 15, 2018, for anyone filing a 2017 return. Check out the e-file link on IRS.gov for details on the various electronic filing options. Free File is not available to nonresident aliens required to file a Form 1040NR.

More information available

Any U.S. taxpayer here or abroad with tax questions can refer to the International Taxpayers page and use the online IRS Tax Map and the International Tax Topic Index to get answers. These online tools group IRS forms, publications and web pages by subject and provide users with a single-entry point to find tax information.

Taxpayers who are looking for return preparers abroad should visit the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

To help avoid delays with tax refunds, taxpayers living abroad should visit Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad on IRS.gov.

More information on the tax rules that apply to U.S. citizens and resident aliens living abroad can be found in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, available on IRS.gov.

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IRS Releases Draft FATCA Compliance Certification Forms, Indicates July 1 Deadline May Be Extended by 90 Days

By Matthew D. Lee on March 17, 2018

Posted in Foreign Account Tax Compliance Act (FATCA)

The Foreign Account Tax Compliance Act (FATCA) requires a foreign financial institution to appoint a “Responsible Officer” who is obligated to submit periodic compliance certifications to the Internal Revenue Service attesting to the institution’s compliance with various FATCA duties. For most Participating Foreign Financial Institutions (FFIs) and Reporting Model 2 FFIs, the first deadline for their Responsible Officers to submit such compliance certifications is July 1, 2018. The first certification required to be filed addresses the FFI’s due diligence with respect to pre-existing accounts (referred to as a “Certification of Pre-Existing Accounts”), and the second certification addresses the FFI’s compliance with various FATCA obligations (referred to as a “Periodic Certification”). Both of these certifications will be used by the IRS to measure each FFI’s FATCA compliance.

Yesterday the IRS published long-awaited drafts of the compliance certifications in order to assist Responsible Officers in preparing to meet the upcoming certification deadline. The following variations of the Certification of Pre-Existing Accounts are now available in draft form:

The following variations of the Periodic Certification are now available in draft form:

Yesterday’s announcement by the IRS also appears to contain a bit of good news regarding the upcoming compliance deadline. It appears that the July 1 deadline will be extended by up to 90 days, because the IRS FATCA Registration Portal will evidently not be ready to accept compliance certifications before July 2018. Here is the text of the IRS announcement:

The due date for submitting both FATCA certifications (one that relates to an entity’s preexisting accounts (“COPA”) and another that relates to the entity’s compliance with various FATCA requirements (“periodic certification”)) is July 1 following the third full calendar year after the date the entity registered and received a GIIN. The update to the FATCA Registration Portal containing FATCA certifications will not be available prior to July 2018. For entities that have certifications due by July 1, 2018, please note, any Responsible Officer (RO) that is required to certify will have no less than 3 months from deployment of the certifications on the FATCA Registration Portal to submit them.

We are continuing to monitor developments in this area and will post updates as they become available.

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Senator Rand Paul Once Again Takes Aim at FATCA

By Matthew D. Lee on November 30, 2017

Posted in Foreign Account Tax Compliance Act (FATCA)

In the midst of the tax reform debate currently embroiling Congress, Senator Rand Paul (R-Kentucky) has introduced an amendment seeking to repeal the Foreign Account Tax Compliance Act (FATCA), an anti-tax evasion law enacted in 2010 that requires foreign banks to annually disclose to the Internal Revenue Service the identities of their U.S. customers, or face steep financial penalties. Senator Paul has long been a critic of FATCA, calling its provisions unconstitutional and an invasion of U.S. citizens’ privacy rights in their financial records. In 2015, Senator Paul and a group of U.S. citizens residing abroad filed a federal lawsuit challenging the constitutionality of FATCA; the suit was dismissed by the district court and, on appeal, the dismissal decision was affirmed. In April, Senator Paul introduced legislation to repeal FATCA.

Today Senator Paul introduced an amendment to H.R. 1, the Tax Cuts and Jobs Act, to repeal FATCA. In a press release announcing his amendment, Senator Paul stated “[a]s we work to reduce the massive tax burden Washington has placed on the American people, we should also stand up for their Fourth Amendment right to privacy by rejecting the bulk collection of the financial information of Americans who live overseas.” Senator Paul contends that FATCA “has impeded international financial transactions and investment by leading many foreign banks to simply deny services to Americans rather than navigate the burdens and costs of compliance.”

It is noteworthy that Senator Paul’s proposed amendment would not simply repeal FATCA’s annual reporting obligation imposed on foreign banks. It would also repeal related FATCA provisions that:

require U.S. taxpayers to annually report their foreign financial assets on a new reporting form called Form 8938, Statement of Specified Foreign Financial Assets;
impose penalties for understatements attributable to undisclosed foreign financial assets; and
extend the statute of limitations in the case of underreporting of foreign financial assets.

The proposed amendment would also repeal or significantly amend other international, but non-FATCA, reporting provisions, including:

reporting by U.S. persons who are shareholders of passive foreign investment companies (PFIC);
reporting of U.S. persons who are treated as owners of a foreign trust; and
penalties that may be assessed for failure to report information relating to certain foreign trusts.

In light of the uncertainly currently surrounding the entire tax reform debate, it is impossible to predict whether Senator Paul’s proposed amendment stands any chance of passage, especially when the issues relating to FATCA seem to pale in comparison to the larger, structural reform issues currently being debated in Washington. However, as we previously reported, the Treasury Department has included the FATCA regulations as among those it is currently reviewing as part of its larger effort to reduce regulatory burden imposed upon taxpayers.

On Eve of “Paradise Papers” Release, At-Risk Individuals Should Consider Immediate Action to Mitigate Potential for Criminal Prosecution

By Matthew D. Lee on November 16, 2017

Posted in Foreign Account Tax Compliance Act (FATCA), Foreign Bank Account Reporting (FBAR), Panama Papers, Paradise Papers, Tax Evasion, USDOJ Swiss Bank Program, Whistleblowers

Tomorrow morning (November 17) the International Consortium of Investigative Journalists (ICIJ) is set to release publicly the first set of comprehensive data from the recent “Paradise Papers” leak. The initial data will include information on approximately 25,000 offshore entities and trusts registered in more than 30 jurisdictions, primarily from client records of the Appleby law firm. It will include information about shareholders, officers, addresses, and more. This new “Paradise Papers” data will be added to ICIJ’s existing Offshore Leaks Database, which already includes data from prior leaks, including the “Panama Papers,” and is fully searchable.

The Paradise Papers consist of nearly 13.5 million leaked files from Appleby, a leading offshore law firm based in Bermuda and elsewhere. The files were initially obtained by German newspaper Süddeutsche Zeitung (which also obtained the Panama Papers), which shared them with ICIJ and a consortium of media partners. According to ICIJ, the Paradise Papers include loan agreements, financial statements, emails, trust deeds, and other documents spanning a 50-year period.

Of particular note, the Paradise Papers contain far more information about U.S. citizens, residents, and companies than previous leaks such as the Panama Papers. According to ICIJ, the Paradise Papers contain information about at least 31,000 U.S. individuals and companies.

The ICIJ and other media outlets began reporting on the Paradise Papers on November 5, 2017. Since that time, numerous articles have been published about prominent companies and individuals named in the Paradise Papers. Numerous multi-national corporations are identified in the leaked documents as owning offshore companies, and high profile elected officials, celebrities, and businesspeople are also named.

To date, there have been no public indications that U.S. government has gained access to the Paradise Papers data. That will change, of course, tomorrow morning when the data will be made available to the public, and any government agency will be able to view the data by simply accessing the ICIJ Offshore Leaks Database. As occurred following the Panama Papers leak, we fully expect the IRS and Justice Department to mine the data and to use it as a basis for future enforcement action.

Individuals who believe they may be identified in the Paradise Papers as the beneficial owner of an offshore company or a foreign bank account, or the beneficiary of an offshore trust, and have not disclosed such interest to the Internal Revenue Service, should consider prompt action to mitigate the risk of criminal prosecution and harsh financial penalties. The IRS has long maintained a number of well-publicized voluntary disclosure programs that afford non-compliant U.S. taxpayers the opportunity to avoid criminal prosecution by self-disclosing their non-compliance to the IRS, explaining the facts and circumstances of non-compliance, and paying back taxes, interest, and penalties. The most popular voluntary disclosure program offered by the IRS is the Offshore Voluntary Disclosure Program (OVDP), which is directed at non-compliant taxpayers with secret offshore assets. U.S. individuals identified as beneficial owners of secret offshore companies may take advantage of the OVDP to avoid criminal prosecution, but only if they commence the voluntary disclosure process before the IRS learns of their non-compliance from third-party sources, including whistleblowers. Thus, time is of the essence, and individuals concerned about being named in the Paradise Papers database should act quickly and consider whether a voluntary disclosure to the IRS is warranted.

Since 2009, the United States government has undertaken an aggressive enforcement campaign to combat offshore tax evasion by individuals using secret bank accounts in numerous other tax havens around the world, and the use of offshore structures to obscure beneficial owners. The following statistics present a compelling case:

The Justice Department has criminally charged more than 100 U.S. accountholders who have evaded U.S. tax laws using hidden offshore accounts, and nearly 50 individuals (mostly foreign nationals) who assisted them.
As a result of the Justice Department’s “Swiss Bank Program,” 80 Swiss banks admitted to aiding and abetting tax evasion by their U.S. customers, and paid more than $1.3 billion in penalties.
Under threat of criminal prosecution, more than 55,000 individuals have come forward to disclose their offshore accounts to the IRS through the OVDP and other voluntary disclosure programs, paying more than $8 billion in tax, penalties, and interest.
Under the Foreign Account Tax Compliance Act (FATCA) signed into law in 2010, financial institutions in over 100 countries around the world have agreed to report information regarding their U.S. clients to the United States, in an effort to ensure that tax cheats cannot hide assets offshore.

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Tax Controversy and Financial Crimes Report

Foreign Account Tax Compliance Act (FATCA)

Treasury/IRS Issue Proposed Regulations to Ease FATCA Compliance Burdens

IRS Issues Reminder of Upcoming FATCA Compliance Certification Deadline

Transparency Tide or Tsunami? The New Wave of Global Reporting Rules and IRS Tools To Unearth Foreign Financial Accounts

Despite Closure of OVDP, Offshore Tax Evasion Crackdown Marches On

Offshore Bankers Beware: Justice Department Secures First-Ever Criminal Conviction for Violating FATCA

Matthew D. Lee Authors 2018 Update to Foreign Account Tax Compliance Act Answer Book

Internal Revenue Service Reminds Taxpayers to Report Offshore Bank Accounts on FBAR Form

IRS Releases Draft FATCA Compliance Certification Forms, Indicates July 1 Deadline May Be Extended by 90 Days

Senator Rand Paul Once Again Takes Aim at FATCA

On Eve of “Paradise Papers” Release, At-Risk Individuals Should Consider Immediate Action to Mitigate Potential for Criminal Prosecution

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