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Washington DC Tax Law Blog

What are the Paradise Papers?

A second wave of leaks about the use of offshore accounts is making its way through the media. The first was dubbed the Panama Papers; the latest, the Paradise Papers.

What exactly are the Paradise Papers? The term refers to over 13.4 million documents connected primarily to a law firm that aids the wealthy with estate planning matters.

Manafort indictment calls attention to foreign tax havens

The investigation into allegations of Russian interference in the 2016 presidential election has led to allegations of United States tax violations. One example is the recent indictment of President Donald Trump’s former campaign chairman, Paul Manafort. Mr. Manafort is accused of using shell companies to hide assets and avoid tax obligations.

As noted in a piece by The Atlantic, the use of shell corporations is not always illegal. There are some shell companies that operate within the bounds of the law. However, the practice becomes illegal when used to evade tax obligations or launder money connected to criminal activity. The use of one particular area, Cyprus, for a shell corporation has supported concerns that Mr. Manafort’s dealings are not in line with tax laws. Cyprus has a reputation as a tax haven that keeps ownership details from the public. Cyprus also has a history as a hot spot for money-laundering activities. 

Will American expats get a tax break in the future?

Proposed tax changes could benefit American expats. There is a strong push by expats to include language that would address the United States’ current tax system and how it handles expats. 

How do U.S. taxes work for expats? Currently, the system uses a citizenship based system as opposed to a residence based system. This results in tax obligations even when an American is residing within another country. A residence based system would reduce the requirements for those who live in another country to pay taxes to the United States. In the current system, the only way to avoid these tax obligations is to renounce citizenship. 

IRS continues to focus on Cayman Islands for tax violations

Offshore accounts continue to face scrutiny by the Internal Revenue Service (IRS). The federal agency examines these accounts to ensure the owner is in compliance with tax laws. A failure to do so can result in serious penalties, including fines and potential prison time for serious offenses.

With these potential penalties, it may seem like too much of a hassle to have this type of account. In reality, the accounts can be well worth the hassle. Offshore accounts can offer a number of benefits. Entrepreneurs may use these accounts to diversify their portfolios, take advantage of higher interest rates or provide easy access to funds while traveling. The IRS continues to focus on the Cayman Islands as a haven for tax violations.

Reminder: Tax filing extension deadline Oct. 16

If you got an extension on your tax filings, the deadline is likely fast approaching. For many, the deadline for extended filings is set at October 16. Before submitting that filing, be sure to check to make sure that you are getting the most of available benefits. Three examples to check for include:

  • Income. Depending on your income, you may qualify for certain benefits. One example is the Earned Income Tax Credit (EITC).
  • Retirement. Certain contributions to retirement accounts are often deductible. This can include contributions to a 401(k) or an IRA.
  • Education. Parents and college students can also take advantage of certain credits for qualifying costs connected to education.

Do you need to comply with FATCA?

The Foreign Account Tax Compliance Act (FATCA) requires certain United States taxpayers to report foreign assets to the Internal Revenue Service (IRS). This is in addition to other requirements, such as filing the Report of Foreign Bank and Financial Accounts (FBAR) form.

So how do you know if you must comply with FATCA requirements? Ask these three questions to help find the answer:

Side hustle or legit job: The IRS is watching the “gig” economy

The Internal Revenue Service (IRS) is keeping a close eye on what is referred to as the “gig” economy. This term refers to a new job market that involves the shift from typical nine to five jobs to short-term, flexible positions. These positions are often self-managed, allowing a great deal of autonomy for those who pursue this type of work.

How do people make money in the “gig” economy? A recent piece in Finder, an online platform that provides information and comparisons about topics ranging from money to travel, dug into this issue. The piece notes that more traditional practices like cleaning or babysitting are common in the gig economy. More modern options are also widely available. These include jobs through Uber or running an online booth on Etsy. 

Corporate inversion to reduce tax obligations under fire

There are a number of legal ways to reduce tax obligations. Some of these methods are common, known to anyone that has filed taxes. Basic deductions like charitable donations are a common example. Other maneuvers are more specialized.

One such method, referred to as a corporate inversion, is under scrutiny by the federal government.

Department of Justice investigates Swiss Life for tax evasion

The Swiss insurance industry is now under close scrutiny by the United States Department of Justice (DOJ). One insurance provider in the nation, Swiss Life, recently announced that it is under investigation by the DOJ.

Why would the DOJ dig into insurance companies for wrongdoing? A recent publication on swissinfo.ch discusses the move. It notes that the federal agency found Swiss banks guilty of maintaining undeclared accounts for United States clients in the guise of insurance policies. Basically, the funds were hidden in something referred to as an insurance wrapper. 

IRS attempts to investigate Coinbase users for tax fraud

The Internal Revenue Service (IRS) is in the midst of a lawsuit against cryptocurrency provider Coinbase. The agency is attempting to gain information about those who use Coinbase, claiming that there is a high likelihood that these users are guilty of various tax crimes.

What is the basis for these allegations? The agency supports these allegations by pointing to the numbers. According to the IRS, they simple do not add up. As noted in a publication by Coindesk, a source that focuses on news relating to digital currency and also a part owner of Coinbase, the federal agency requested information about Coinbase users for 2013, 2014 and 2015. 

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