By now, almost everyone has heard of the Paradise Papers, a massive set of electronic documents about offshore investments. Among other things, the papers suggest that Commerce Secretary Wilbur Ross may have business links to Vladimir Putin’s family. In this report, San Francisco tax lawyer Rob Wood discusses the effect the Paradise Papers could have on the tax world, especially the tax reform bills moving through Congress. Wood reported on this subject in a Forbes article, “Paradise Papers Expose Rich And Famous Using Tax Havens.”
Wood notes that the Paradise Papers, like the Panama Papers, contain information about wealthy people and their involvement with offshore entities. For U.S. citizens, the issue with foreign assets disclosure to the IRS. “Is it declared on people’s taxes?” It is also necessary for U.S. citizens to report assets in foreign banks on bank account reporting forms. The disclosure about wealthy people using offshore investments ties in with criticism of Republican tax reform bills as doing too much for the wealthy and not enough for everyone else. Wood says that some critics are suggesting that “we should call a halt” to the tax reform efforts.
There are lessons in the Paradise Papers disclosure for all taxpayers. One of those key lessons is that foreign investments, wherever they may be, must be reported, must be disclosed. If a taxpayer has more than $10,000 in the aggregate in foreign banks, the accounts must be disclosed. Wood points out that disclosure of the foreign bank accounts is a separate item from reporting foreign income on one’s tax return. Having foreign investments is not illegal so long as proper disclosure is made.
Wood thinks there’s “a good chance” that the IRS will begin investigations of the people whose names appear in the Paradise Papers. The Panama Papers disclosure a year ago got people motivated to fix their tax issues with foreign investments. Wood mentions as an example the prosecution of soccer star Lionel Messi by the Spanish government. It seems likely that the IRS will cross-check to see if amounts that show up in the Paradise Papers were properly declared.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.