The Panama Papers: How They May Impact You Legally and Taxwise

In April 2016, over 11.5 million documents, some dating as far back as the 1970’s, were hacked from the Panamanian law firm Mossack Fonseca and released to the worldwide media. The papers include detailed information for over 214,500 offshore entities. Much of the information would normally be considered attorney client communications. These “Panama Papers” have disclosed that some U.S. taxpayers may have tax liabilities and possible criminal exposure.

The U.S. Justice Department has initiated a criminal investigation into these offshore tax schemes and the use of “shell” foreign entities to conceal the offshore holdings by both individuals and corporate entities. This may result in foreign banks turning over any records relating to the Mossack Fonseca firm. Of course, as these documents are analyzed, they may lead to others who were not clients of Mossack, but simply dealt with or were involved with their clients. These events further emphasize that owners of offshore companies and bank accounts must act immediately to identify and mitigate risks of criminal and tax sanctions.

The IRS as of this date has not announced whether taxpayers disclosed in the “Panama Papers” will be eligible for Offshore Voluntary Disclosure Program (OVDP) protection. Taxpayers who have reason to think they or their entities may be disclosed in the” Panama Papers” should immediately seek counsel to explore possible legal and tax exposures.

Regardless of any involvement with the “Panama Papers”, anyone with an offshore entity, bank account or other offshore interests or holdings, should consider a review of their obligations to file various forms with the IRS, including Foreign Bank Account Reports (FBAR), Foreign Trusts Reports (3520 and 3520-A), Interest in a Foreign Corporation (5471), to mention just a few. The OVDP is an opportunity to resolve many of these issues. However, as it recites, it could be discontinued at any time. Further, the penalties to be paid under the program have been periodically increased as the IRS has determined that there is greater public awareness of these requirements. Waiting will not make these issues go away.

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