Shell Corps Used in Offshore Tax Evasion Targeted

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The war against international tax evasion took another step forward yesterday with President Obama proposing a federal registry of the owners of all companies created and operating in the United States to aid in the elimination of anonymous shell companies.

The Treasury Department will implement a rule requiring banks and certain financial institutions to collect information on owners of companies when bank accounts are opened for the corporations. The tools are expected to bring transparency to an area that has operated in the shadows and assist in the fight against international money laundering.

President Obama is also expected to send legislation to Congress that would require ownership reporting upon creation or transfer of a company. The IRS already gets some information on company owners but it takes a subpoena for law enforcement to acquire it. Instead, the Financial Crimes Enforcement Network (FinCEN) would house the proposed registry of owner information.

Other proposals aimed at decreasing offshore tax evasion included the ratification of tax information-sharing treaties with eight countries and reciprocal information sharing with banks complying with the Foreign Account Tax Compliance Act (FATCA).

The proposal follows the storm against shell corporations created by the release of the Panama Papers several weeks ago. An insider or hacker acquired a database of emails and client records of law firm Mossack Fonseca and turned over the information to journalists, who studied it for a year before releasing stories identifying some of the participants using shell corporation. The association of journalists with the data are expected to release the names of corporations and the individuals behind them next week.

Law enforcement in the United States and several countries around the world have seemed eager to get the information held by the organization. Here in the United States, it is anticipated that the data could assist both IRS investigations into tax noncompliance as well as DOJ and SEC investigations into potential FCPA violations.

Offshore tax evasion has been a big area for enforcement actions and congressional initiatives over the past decade. The IRS whistleblower program paid out $104 million to a tax whistleblower that provided information which led to a recovery against Swiss bank UBS. The US has also offered discounts to individuals that reveal previously undisclosed overseas assets through the Offshore Voluntary Disclosure Program. Other initiatives, such as the FBAR reporting requirement and FATCA information sharing program have sought additional information to aid enforcement efforts.

If you have information that could prove useful to the Internal Revenue Service’s tax enforcement efforts, please call 1-800-590-4116 to speak to one of our IRS whistleblower attorneys.