In what seems to a recurring theme, a mass data release - this one known as the "Paradise Papers" - has disclosed the identities of high-profile users of offshore accounts. It is vitally important to note prior to discussing the content of the Paradise Papers that there is nothing inherently wrong with having offshore or foreign accounts. The IRS even recognizes the validity of these accounts, which is why it established protocols for reporting income from them via the FATCA and FBAR.
The Paradise Papers revealed numerous high-profile offshore account holders, including:
- Businesses like Amazon, Facebook and Nike
- U2 front man Bono
- Queen Elizabeth
- Commerce Secretary Wilbur Ross
Offshore accounts, including those in known tax havens like the Caiman Islands and the Bahamas (as well as those in foreign countries like Canada, Switzerland and Mexico) exist for myriad reasons. Some people use them for convenience; it's easier for an expat living abroad to use a local banking institution. Frequent business travelers may establish a fund in an oft-visited country for ease and to avoid having to exchange currency. There are also investment opportunities in foreign countries that may not exist here.
Some offshore accounts exist for nefarious purposes, such as tax evasion and avoidance. Though recent laws like FATCA have increased oversight of foreign accounts, some people assume they don't need to report assets held in foreign banks, and think that banking institutions will protect their identity. There is a relatively thin line between taking advantage of tax benefits offered by offshore banks and purposely evading tax obligations.