Bermuda may have wrongfully disclosed taxpayer information
12 February 2014
Posted by: Author: Brian Mahany
Author: Brian Mahany
The Internal Revenue Code is crystal clear; taxpayer information is private and confidential. Sure, there are exceptions. If you don’t pay taxes and get a lien, if a tax case heads to federal court, or if you are indicted for tax evasion, then expect your tax information will be public. If you are doing nothing wrong, however, your income, deductions and tax bill — everything on your return — is confidential.
The Internal Revenue Service takes confidentiality so seriously that wrongful disclosure is a crime punishable by up to a year in prison.
Unfortunately, mistakes happen. (In a few very rare cases, a dishonest IRS employee or tax preparer commits identity theft and "steals” confidential information to make a phonyrefund request or intercept someone’s refund. This post does not discuss those intentional acts.)
With FATCA looming large on the horizon and many nations and foreign banks gearing up to begin making disclosures, some privacy advocates are worried about even more improper disclosures.
Like the United States, most nations have equally strong privacy statutes that protect both banking data and tax information. We don’t want our neighbors knowing how much we make nor how much money we have in the bank. It’s none of their business. Our neighbors in Canada, India, Europe and other places feel the same way.
Yet some privacy advocates have been warning that data breaches are inevitable once FATCA fully kicks in and thousands of banks and dozens of nations begin trading information.
Earlier this week, IFC Review, a well respected international financial news source, claimed a clerk in Bermuda may have inadvertently released tax data regarding 3 U.S. companies, Flat Island Company, RI Holdings, and Round Island One. While anyone can make mistakes, this disclosure allegedly occurred because of a government request under a "TIEA,” a tax information exchange agreement.
Of course, the most notable TIEA is FATCA.
Unfortunately, more mistakes are inevitable. Is this a reason for a country not to join FATCA? No. There are plenty of problems with FATCA but we don’t believe that occasional wrongful disclosures are at the top of the list. What is more worrisome is the proliferation of hackers and disgruntled bank workers now willing to sell account information to the highest bidder.
We have previously reported about both France and Germany purchasing stolen Swiss and Liechtenstein account data. In one case, the government even provided witness protection to the thief. While there are no known instances of the U.S. purchasing stolen data, it certainly isn’t above receiving such data from other nations.
The bottom line? The recent disclosures in Bermuda shouldn’t have occurred. More mistakes will likely follow but FATCA is here to stay. At least until something better replaces it. If you have unreported offshore accounts or have FATCA related questions, talk to an expert.
In accordance with Circular 230 Disclosure
This article first appeared on taxconnections.com.