Lessons For US Taxpayers Hiding Assets Offshore

On  July 6, 2016 we posted Argentina and Barcelona Soccer Player Leo Messi Handed Jail Term in Spain for Tax Fraud  where we discussed that a Spanish court on July 6, 2016 sentenced the Argentine soccer superstar Lionel Messi to 21 months in jail after he was found guilty of tax fraud for using offshore companies to avoid paying Spanish taxes on advertising contracts.

Under Spanish law, a tax prison sentence under two years can be served under probation, meaning Messi and his father are very unlikely to go to jail. Mr. Messi was also fined about 2.1 million euros, or $2.3 million, by the court.

Messi had hoped that his appeal to Spain's Supreme Court would clear his name. But the convictions of both Messi and his father were upheld. So were their prison sentences.

Barcelona on Wednesday issued a statement in support of their star forward, saying that they feel Messi is not criminally responsible for the tax fraud.

Some of the lessons for US Taxpayers from this Spanish case are obvious:

1. Be accountable and be transparent.
2. One of the biggest themes is accountability.
• Even people with complex affairs who rely on professionals and trusted advisers to handle their affairs may not be able to entirely avoid responsibility.
3. Signing a tax return, for example, requires some accountability.

One of Messi's primary defenses in the trial was that he simply did not understand. He said that he signed many documents without reading their contents. Such a defense may not work in the U.S. either.

According to the IRS, the test is whether there was a voluntary, intentional violation of a known legal duty. Willfulness is shown by your knowledge of reporting requirements and your conscious choice not to comply.

1. Willfulness means you acted with knowledge that your conduct was unlawful, a voluntary, intentional, violation of a known legal duty.
2. You may not have meant any harm or to cheat anyone, but that may not be enough.
3. The failure to learn of filing requirements, coupled with efforts to conceal, may mean a violation was willful.
4. Even willful blindness may be enough, a kind of conscious effort to avoid learning about reporting requirements. Prosecutors had suggested this in Messi's case.

A related lesson is about transparency:

• Hiding things always looks bad.
• Spanish prosecutors wisely focused on the Messis' secrecy.
• The names of the beneficial owners of companies were hidden.
• The Messi's had companies registered in the UK, Switzerland, Uruguay and Belize.  

Some of the primary charges against Messi and his father involved their use of these shell companies. They were designed to avoid taxes on 4.16 million euros of Messi’s income from image rights. It did not help that Messi's name came up in the Panama Papers.

Accountability and Transparency are likely to be universal lessons to be gleamed from this case and remember:

• If you don't understand, ask.
• If something is being covered up, ask why.
• If there is a good reason to hide ownership from the public, at least make very sure that the ownership is not hidden from the government.

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Sources:

Forbes

ESPN FC