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June 4, 2017


The Messi tax evasion case, part 2: implications for offshore compliance

In part one of this post, we took note of the unsuccessful appeal by soccer star Lionel Messi of his tax fraud conviction.

His attempt to claim lack of knowledge of his father’s use of shell companies to hide income didn’t go over well with the appeals court. The court upheld Lionel Messi’s 21-month conviction, even as it reduced his father’s sentence to 15 months due to cooperation with authorities.

What does the resolution of the Messi case tell us about tax cmpliance and enforcement, particularly regarding offshore accounts?

Messi was prosecuted under Spanish law, not U.S. law. But the principles in play in the Messi case are very similar to those that apply in the U.S.

One such principle is that deliberate efforts to remain  uninformed about tax avoidance tactics can be considered willful tax evasion. Conduct can be willful even if there is no conscious intent to cheat.

In other words, if someone deliberately does not take steps to become properly informed about the law, the IRS may view this as an indication of willful tax evasion.

This is particularly true if there seem to be efforts to conceal something. Lack of transparency is another indicator that a failure to pay taxes may have been willful.

Greater transparency has of course become a clearer and clearer theme with the IRS in its approach to foreign accounts. Since 2009, the IRS has been cracking down on undisclosed accounts.

Even more scrutiny on those accounts has come with implementation of the Foreign Account Tax Compliance Act (FATCA). FATCA has forced foreign banks to turn over information about U.S. taxpayers with accounts worth over $50,000.

In short, the Messi case suggests that in the complicated yet highly scrutinized context of offshore accounts, taxpayers will likely do well to not merely kick the compliance can down the field to a tax adviser. When there are enough red flags, that conduct can seem like willful tax evasion.

Tax Evasion