Offshore Tax Havens Face Increasing Scrutiny, With IRS Whistleblowers Assisting

“Offshore” accounts are an increasing priority of IRS enforcement, aided by the new IRS Whistleblower Program. The Offshore World has changed and will never be the same again. The traditional tax haven assurance of secrecy and anonymity won’t necessarily work any more.

The US has concluded Tax Information Exchange Agreements (TIEA’s) with a number of Offshore jurisdictions. Although the TIEA’s fall short of comprehensive Double Tax Treaties, they allow the IRS to obtain tax information about entities and accounts in Offshore jurisdictions under certain circumstances.

In many cases, these agreements allow the jurisdiction to forego financial secrecy laws when faced with a specific information request from the IRS. In most cases, the exchange of information potentially covers civil as well as criminal investigations by the IRS.

So far the US has concluded TIEA’s with a number of jurisdictions including Gibraltar, Lichtenstein, Isle of Man, Aruba, Antigua and Barbuda, Cayman Islands, Guernsey, Jersey, Bahamas, British Virgin Islands, Monaco, Bermuda, Barbados, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica and Netherlands Antilles.

In recent years the US has tended to regard any country or jurisdiction that offers undue secrecy to investors as being equivalent to Offshore.

In terms of the “Tax Havens Abuse Act,” U.S. draft legislation has existed since 2007, which lists 34 jurisdictions as secrecy jurisdictions. Included in the list are jurisdictions not traditionally regarded as Offshore, including Switzerland and Singapore, as well as Malta, Cyprus, Luxembourg and Hong Kong.

Tax whistleblowers–including persons with knowledge of offshore tax schemes–will be increasingly important to the IRS effort to recover from those who engage in tax fraud and tax evasion. Honest citizens will appreciate whistleblowers’ efforts to recover from those who refuse to pay their fair share of taxes, especially with the current U.S.”tax gap” of several hundred billion dollars each year owed but not collected.