Leaked Panama Papers will Spawn New IRS Criminal Tax Investigations

The “Panama Papers” — a trove of 11.5 million internal documents leaked from the infamous Panamanian law firm, Mossack Fonseca. The documents show how hundreds of thousands of people, including politicians, billionaires from Fortune’s 500 Richest Persons List, movie stars, professional athletes, drug dealers, arms traders, and human traffickers, used anonymous shell corporations across the world to conceal wealth, defy U.S. sanctions, and naturally, evade taxes. Many commentators have opined that most of the activities revealed in the Panama Papers are perfectly legal. The firm, unsurprisingly, denies any wrongdoing.

Then there are leaked e-mails like this, from a Mossack Fonseca partner, which say: “Ninety-five percent of our work coincidentally consists of selling vehicles to avoid taxes.”

The Internal Revenue Service and Department of Justice will use the Panama Papers to springboard numerous criminal tax investigations into both foreign and US persons identified in the documents.  Indeed the leaked documents reveal that Mossack Fonseca have been tied to nearly 1,100 business entities in the United States since 2001.

The vast majority of U.S. based companies linked to the firm were formed in Nevada and by M.F. Corporate Services (Nevada) Limited.[1] M.F. apparently has one employee and is located in a building approximately 20 miles from the Las Vegas strip.[2]  MF Nevada has served as the registered agent for 1,026 business entities since 2001, according to USA TODAY's review of Nevada business documents.[3]

With such prevalent links to U.S. firms and people, new IRS investigations are imminent. The Executive and U.S. agencies have indirectly stated as much.

“There is no doubt that the problem of global tax avoidance generally is a huge problem,” President Obama told reporters at the White House on Tuesday. Obama added “a lot of these loopholes come at the expense of middle-class families, because that lost revenue has to be made up somewhere.”

Peter Carr, spokesman for the Department of Justice stated, “We are aware of the reports and are reviewing them. While we cannot comment on the specifics of these alleged documents, the US Department of Justice takes very seriously all credible allegations of high-level, foreign corruption that might have a link to the United States or the US financial system.”

Presidential candidates have also indicated their eagerness to find and prosecute tax evaders. Bernie Sanders stated he would “terminate” the Panama agreement within six months and “conduct an immediate investigation into US banks, corporations and wealthy individuals who have been stashing their cash in Panama to avoid taxes. If any of them have violated US law, my administration will prosecute them to the fullest extent of the law.”

Government officials have clearly stated their intent to find and punish those who evade taxes, and the Panama Papers just put over one thousand U.S. businesses in the government’s crosshairs. Expect to see the IRS launch numerous investigations into both US and foreign-based taxpayers identified in the Panama Papers.

By Michael S. Cooper, Esq., Barnes Law

Michael Cooper is an associate attorney with Barnes Law, and is licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] http://www.usatoday.com/story/news/2016/04/05/panama-papers-firm-linked-1000-plus-us-companies/82670334/

[2] Id.

[3] Id.