Scott Michel and Mark Matthews Comment on Number of U.S. Taxpayers Exposed by Panama Papers

Scott D. Michel and Mark E. Matthews spoke with Tax Notes concerning the implications of the release of the Panama Papers database, including the degree of nexus to the U.S., the likely usage by the U.S. government and other aspects of the disclosure. For the full article, please visit Tax Notes' website (subscription required).

Excerpt taken from the article "U.S. Taxpayer Revelations From Panama Papers Expected to Be Modest" by Amanda Athanasiou for Tax Notes.

Previous public reports had suggested that there would be little or no nexus to the U.S. in the disclosures coming today, but clicking through the database produces thousands of 'United States' hits for entities, intermediaries, and individuals," Scott D. Michel of Caplin & Drysdale Chtd. told Tax Analysts. "There may be a much larger U.S. connection here," he said, adding that the IRS and the Justice Department are likely comparing the data with filings or other information that may reveal tax noncompliance, or worse.

But Michel also pointed out that the disclosures reveal nothing about whether the structures involved are lawful or not, or whether they have been properly reported to the IRS or other tax authorities. Just as this information may expose tax evasion or more serious criminal conduct, it also constitutes a substantial breach of privacy for many people who've done nothing wrong, "that's a concern," he said.

. . .

Mark E. Matthews of Caplin & Drysdale Chtd., former chief of the IRS Criminal Investigation (CI) division, said he wasn't surprised that so far the Panama Papers leak is not overwhelmingly a U.S. story. He echoed the sentiment of other advisers routinely involved in offshore account compliance who have said they don't see the name Mossack Fonseca very often. "That tells me they haven't been heavily involved in offshore activities of U.S. taxpayers," he said.

 . . .

Matthews pointed out that in order for a U.S. citizen to own property in some Caribbean and Central American countries, they need to have a local entity formed. "There could be 200 American citizens with a second home in Belize or Panama who created a corresponding structure -- those would all be legal," he said. "While some may not have realized their U.S. tax reporting obligations, it's not going to be a big U.S. tax evasion scheme."

. . .

Matthews said it's plausible that the IRS, DOJ, and U.S. compliance requirements make the U.S. market a more dangerous and burdensome environment to do business in. Song agreed that Mossack Fonseca may not have wanted to risk catching the attention of the IRS. The "IRS Criminal Investigation unit has the best financial investigators in the world," he said.

. . .

Panama Papers is a story about global risk and global transparency and the notion that there's eventually going to be a leak, said Matthews, who added, "heaven help us when it comes from a government source in the age of FATCA and the common reporting standard." Matthews said that the current leak will probably end up benefiting enforcement "because it worries people." Individuals with hidden entities and accounts who were assured by advisers in Switzerland, Panama, or Hong Kong that their arrangements are perfectly safe have got to be thinking "That's for the birds," Matthews said.