President Obama Announces Efforts to Stop Global Tax EvasionMay 26, 2016
In attempts to combat tax evasion, the U.S. Department of the Treasury has proposed new rules for large corporations and wealthy individuals.
International tax enforcement is a top priority of the federal government. President Obama recently announced efforts the Department of the Treasury has taken to close the loopholes some large corporations and wealthy individuals exploit to avoid paying taxes. He also urged Congress to do its part to facilitate international tax investigations. Here are some recent developments in the ongoing battle against global financial crimes.
The Panama Papers cast the spotlight on offshore accounts and anonymous shell companies. They show how these tools can be used to hold assets, wire money and open accounts without revealing the identities of the “beneficial owners” who control the entities’ activities.
Some shell companies are used for legitimate purposes — say, to hide the identity of real estate developers to prevent speculative price gouging. But they are also suspected of serving as empty “fronts” that help dishonest people evade taxes, launder money or finance terrorist activity.
Latest Treasury Efforts
In May, the U.S. Department of the Treasury took two important steps to combat tax evasion via shell companies:
- It finalized the “customer due diligence rule.” This requires U.S. banks and other financial institutions to know, verify and report the beneficial owners of legal entities that are the institution’s customers — that is, the people who own 25% or more of the legal entity or who control the legal entity.
- It proposed a rule that would require foreign-owned, single-member limited liability companies (LLCs) to obtain a tax identification number from the IRS. This would force these entities to report ownership and transaction information to the IRS.
These steps aim to improve transparency within the United States and help the government track financial transactions, collect taxes and prevent security threats. Treasury also hopes that these measures establish a strong model for other countries to follow and facilitate international cooperation and global transparency.
Potential Legislative Measures
President Obama and Treasury Department Secretary Jacob J. Lew want Congress to build on these efforts. Specifically, they’ve asked Congress to pass beneficial ownership legislation, give law enforcement better anticorruption tools and approve pending bilateral tax treaties. They also want Congress to strengthen existing rules under the Foreign Account Tax Compliance Act (FATCA), which would facilitate reciprocal transparency from U.S. financial institutions to our global trade partners.
Approaching Reporting Deadline
Under FATCA, U.S. citizens and resident aliens must report information about certain foreign financial accounts and offshore assets on Form 8938 and attach it to their income tax return, if the total asset value exceeds the appropriate reporting threshold.
This is in addition to the Report of Foreign Bank and Financial Accounts (FBAR), which must be filed no later than June 30, 2016, for interests in or signature or other authority over foreign financial accounts whose total value exceeded $10,000 at any time during 2015. Beginning next year, the due date for reporting these foreign accounts will be the same as the individual income tax return filing deadline, generally April 15.
In light of the government’s increasing focus on offshore accounts and shell companies, the related rules are becoming increasingly complex and burdensome. If you need help reporting foreign accounts or complying with the latest Treasury Department reporting requirements, contact us. Our team of global tax specialists can help you comply with the latest rules and regulations.