Panama Papers fallout, part 2: impact on U.S. taxpayers

Let's continue our discussion of the consequences of the disclosure last spring of a massive series of documents on foreign tax shelters known as the Panama Papers. The documents cast a harsh light on tax avoidance or evasion strategies used by the very rich.

In part one of this post, we noted that the European parliament has opened an official inquiry into the role offshore accounts in the British Virgin Islands, the Cayman Islands and other British overseas territories not only to evade taxes, but to facilitate other financial crimes.

But how are the ripples from the Panama Papers likely to affect U.S. taxpayers? That is of course a huge topic, with ongoing implications for tax compliance. In this part of our two-part post, we will take note of a couple of things that have already happened that affect the compliance climate.

New Rule on Shell Companies

There has already been one administrative rule change in the U.S. in response to the Panama Papers. The rule imposes new obligations on financial institutions regarding verification of the identities of the owners of companies set up overseas.

The Financial Crimes Enforcement Network (FinCEN) had put forward a proposal for this change two years ago. But it is only now, in the wake of the Panama Papers, that the rule is being implemented.

Offshore Enforcement Crackdown

In Britain and across Europe, it appears that the Panama Papers may prompt much greater scrutiny of foreign accounts. In the U.S., however, there has already been a long-running initiative to crack down on those who are out of compliance with disclosure requirements for offshore accounts.

That crackdown has been doing on since 2009 and has forced tens of thousands of taxpayers into limited-amnesty programs offered by the IRS. The U.S. has brought in more than $8 billion in taxes, fines, penalties and interest from this crackdown.

In short, the U.S. has been scrutinizing offshore accounts closely for years. It did not take the Panama Papers to be a wake-up call for that to happen.

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