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As International Support on Abolishing Tax Evasion Grows, So Do Concerns

In the past 2-3 years (more so lately in 2013 than ever before), the IRS and the Department of Justice started taking increasing FATCA reporting and tax obligations VERY seriously and set an example for the rest of the world on the possibility of enforcing domestic tax laws internationally.

Each active government and tax authority with an active tax code by which residents are required to abide struggles annually to identify just how much revenue is lost to tax evasion.  While no tax authority can calculate an exact number, there are some estimates that easily exceed the billions; so it comes as no surprise that a great number of countries are sharing in a common goal to claim as many of their once lost tax dollars as possible in coming years.

G-5 Becomes G-8 and Continues to Acquire Support

You may recall a blog post a while back in which the G-5 Agreement was drawn up to represent 5 European Governments standing with the United States against tax evasion…

In the last month or so, G-5 has become G-8; and it appears quite possible that G-8 may soon become G-12 or more to support recent efforts of FATCA and the IRS in hopes of abolishing tax evasion in their own back yards. As this multi-national group grows, however, more questions arise regarding how to go about legally and responsibly meeting the goals of full disclosure and transparency.

How Will Full Disclosure Affect the Tax Year as It’s Happening?

Some of the pioneer countries in the group such as UK are expressing their concerns about the ability to identify the difference between ‘legal, reported foreign bank accounts’ held by non-citizens and accounts for which tax evasion is the primary purpose.  While the IRS has submitted a series of requests to foreign banks for previous years, it has yet to address whether or not information that is to be shared in the future will make any presumptions on US Expats or other countries’ residents.

Consideration of Complex Tax Saving Strategies

An even larger concern than the semantics of sharing foreign bank account information is the question of acceptable tax savings strategies for expats – especially in situations in which a resident of one country is employed by an international tycoon.  Google, for example, employs individuals all over the world.  The problem is that since Google’s pay structure was established in the United States, it meets all US tax code requirements.

In some cases, the employer goes the extra mile to accommodate as much of an individual’s home country’s tax authority as possible.  In other cases, there may be tax liability reducing considerations outlined in an active Tax Treaty.  Both require some planning ahead, and there are a wide variety of legal strategies an individual could use to minimize his/her tax liability as much as possible.

This door for legally acceptable, sophisticated tax planning increases the potential for both:

  1.  Taxpayers and tax advisors engaging in unapproved, ‘Black Hat’ tax avoidance tactics, and
  2. The IRS or another tax authority confusing a legitimate, highly sophisticated and perfectly legal tax saving strategy for an attempt at tax evasion.

Has it not already become the habit of the IRS to conduct an audit if its computer system detects the presence of highly sophisticated tax strategizing?  Yes, it has.  Imagine how many departmental head will be turning once the entire world is under constant watch by their governments and financial institutions all in the name of full disclosure and transparency.

Preparing for the Implementation of Taxpayer Information Sharing

With all the confusion that lies ahead in a new world in which international taxability reaches unattained heights, many global taxpayers may be comforted by the fact that very serious discussions are taking place right now.  This will give the bodies of government and the tax authorities involved in the currently-growing-G-8 an opportunity to identify not only acceptable taxpayer behavior, but also legal and upstanding practices of the governments and tax authorities that will have unlimited taxpayer information at their fingertips.