Monthly Archives: April 2016

On April 4, 2016 we posted Huge Leak From the Panamanian Law Firm Mossack Fonseca! where we discussed that the offshore planning world was set on fire with the news that 11 million documents were leaked from the Panamanian law firm Mossack Fonseca.  They allegedly show how Mossack Fonseca has helped clients launder money, dodge sanctions and evade tax.

This post also speculated that U.S. persons will probably show up, given that Mossack Fonseca apparently maintained a branch in Las Vegas, Nevada, under the name of M.F. Company Services and Mossack Fonseca Company Services is currently attempting to fight a subpoena brought in the U.S. District Court for the District of Nevada seeking information on at least 123 companies that it created.

Then on April 18, 2016 we posted Have An Un-Reported Account Associated With Mossack Fonseca? Like Your Freedom? Call Us!  where we discussed that U.S. federal agents and prosecutors told NBC News earlier that they had begun to mobilize in an effort to obtain and use the Panama Papers to bolster Existing Criminal Investigations and Prosecutions and to Launch New Ones.

 Now The Guardian reports that U.S. Attorney Preet Bharara has “led several crusades against criminal wrongdoing in the financial sector, is already investigating several of the more than 200 US citizens named in the papers.”

The ICIJ received an email, published by the Guardian, from U.S. Attorney Preet Bharara for the Southern District of New York indicating that his office had “opened a criminal investigation regarding matters to which the Panama Papers are relevant.” Further, his office would greatly appreciate the opportunity to speak as soon as possible with any ICIJ employee or representative involved in the Panama Papers Project in order to discuss this matter further.”

The failure to declare certain interests in foreign financial accounts and assets can potentially bring about significant civil penalties and in egregious situations, the possibility of criminal problems.

In today's environment, where there is rampant computer hacking and where governments are paying staggering whistleblowing rewards for information about ANYONE who currently has unreported income or money in an offshore account, needs to be aware that these types of leaks of perceived confidential information from an internal data base of a law firm, trust company, financial institution or otherwise can occur at anytime, anywhere in the world!

The Supreme Court has declined to review a decision of the Court of Appeals for the Federal Circuit that denied, as time-barred, a corporation's refund claim for disputed foreign tax credits (FTCs).

The Federal Circuit concluded that the 10-year statute of limitation period in Code Sec. 6511(d)(3)(A) for filing such claims began with date for filing the return for the year in which the foreign taxes originated, and not for the year in which the amount of the contested foreign taxes was finally settled. Albemarle Corp v. U.S., (CA Fed Cir 8/13/2015) 116 AFTR 2d 2015-5609, rehearing denied (CA Fed Cir 10/22/2015) 116 AFTR 2d 2015-6563, cert denied 4/18/2016.

On May 15, 2009, seven years after the Belgian withholding taxes were paid by Albemarle S.A., plaintiff filed with the United States IRS "an administrative refund claim in the form of an amended consolidated income tax return (Form 1120-X) for the 2002 tax year." Although the settlement with the Belgian tax authorities was finalized, and the taxes were paid, in 2002, plaintiff did not file protective refund claims for the tax years at issue.

The U.S. Court of Federal Claims had previously ruled that Louisiana-based chemical manufacturer Albemarle couldn't claim $825,846 in foreign tax credits for taxes a foreign subsidiary paid to Belgium because the 10-year statute of limitations under tax code Section 6511(d)(3)(A) related back to the tax years of the income at issue and not the year the company settled the liability with Belgian tax authorities.

Judge Marian Blank Horn originally ruled that Albemarle's claims accrued in 1997 and 1998, when its subsidiary received debenture payments that it believed weren't subject to Belgian tax, instead of 2002, when the company reached an agreement with the Belgian tax authorities as to the existence and amount of the tax liability.

 

On April 4, 2016 we posted Huge Leak From the Panamanian Law Firm Mossack Fonseca! where we discussed that the offshore planning world was set on fire with the news that 11 million documents were leaked from the Panamanian law firm Mossack Fonseca.  They allegedly show how Mossack Fonseca has helped clients launder money, dodge sanctions and evade tax. The company says it has operated beyond reproach for 40 years and has never been charged with criminal wrong-doing.

In our blog post. we speculated that while the neither the BBC article, nor a more detailed series of articles from the International Consortium of International Journalists, reference any U.S. client; U.S. persons will probably show up, given that Mossack Fonseca apparently maintained a branch in Las Vegas, Nevada, under the name of M.F. Company Services and Mossack Fonseca Company Services is currently attempting to fight a subpoena brought in the U.S. District Court for the District of Nevada seeking information on at least 123 companies that it created.

IRS officials said they could not discuss who participated and what, specifically, was discussed. But in its statement to NBC news, the IRS described the meeting as "productive and timely" and said "governments around the world are working together cooperatively" to respond to the information released in the Panama Papers, with JITSIC playing a coordinating role. 

U.S. federal agents and prosecutors told NBC News earlier that they had begun to mobilize in an effort to obtain and use the Panama Papers to bolster Existing Criminal Investigations and Prosecutions and to Launch New Ones.

According to media reports, the documents contain information on potentially thousands of U.S. citizens and firms that have at least an indirect connection to offshore accounts affiliated with Mossack Fonseca. 

We previously posted, Get Ready For The USProposed Plan to Require Banks to Identify Owners of Shell Companies! where we discussed that the United States government is close to issuing a rule that will for the first time require banks and other financial institutions to find out the identities of people hidden behind shell companies.

The rule is meant to close a major loophole in the American banking system that enables the sorts of secretive financial maneuvers that were thrust into the spotlight the leak of millions of documents from Mossack Fonseca. See also our prior Blog post US The New Tax Haven?  

The US Treasury is lobbying for federal legislation forcing companies and other legal entities to collect full beneficial ownership information when they are formed, and file it with the US Internal Revenue Service.

The plan was revealed in a speech by Treasury deputy assistant secretary Jennifer Fowler to a financial crime conference earlier this week – coincidentally on the same day that the so-called 'Panama Papers' revelations reached the world's press.

Fowler noted that the Treasury is in the process of introducing a new rule forcing financial institutions to perform customer due diligence checks on new clients. This rule, first published in August 2014, is still under consultation, though close to being finalized.

The regulations are likely in response to the growing view of the United States as a tax haven for foreigners seeking to evade their foreign tax obligations or otherwise conceal their holdings.

The United States has also been criticized for pressuring other countries to implement the Foreign Account Tax Compliance Act ("FATCA"), which requires foreign financial institutions to report to the IRS regarding accounts with direct or indirect U.S. beneficial ownership, while failing to enact legislation that would require American banks to collect and disclose reciprocal information to foreign countries and refusing to sign on to the more wide-reaching Common Standard on Reporting and Due Diligence for Financial Account Information proposed in 2014 by the OECD. 

In its March 30th statement, the Treasury Department noted that one purpose of the new regulations will be to assist foreign countries in obtaining information regarding their own taxpayers under the United States' tax treaties and tax information exchange agreements. 

The new regulations will be issued under section 6038A of the Internal Revenue Code, which requires certain foreign owned U.S. corporations to file a Form 5472 disclosing the identity of their foreign owners and reporting certain related-party transactions. The filing requirement generally applies where more than 25% of the voting power or value of all classes of stock are owned by a single foreign owner. 

The announcement indicates that this filing requirement will be extended to foreign-owned, single-member LLCs, by treating LLCs as corporations solely for the purposes of section 6038A.  This will require such LLCs to obtain U.S. taxpayer identification numbers and report the identity of their foreign owners to the IRS, even if they own no U.S. assets and generate no U.S. source income.  Failing to file the Form 5472 can result in a $10,000 penalty, with additional incremental penalties of $10,000 if the failure continues for more than 90 days after the taxpayer is notified by the IRS.  There is no cap on the total penalty, so a persistent refusal to comply with the filing requirement could result in significant penalties. 

This is only one part of addressing the misuse of shell companies. The other is requiring that companies know and disclose their beneficial owners to the government at the time of company formation. Yet there is currently no state requirement to identify and disclose beneficial ownership information when a legal entity is created. This, Fowler admitted, is 'a longstanding weakness' in the US anti-money-laundering regime.

 

Sources

• US Treasury 
• New York Times
• US Treasury (August 2014 draft rule)