SOURCE: Marks Paneth & Shron LLP

Marks Paneth & Shron LLP

March 11, 2010 12:06 ET

Companies Doing Business Overseas Are Now on the IRS Radar Screen Says Marks Paneth & Shron Director and Former IRS Agent

"A Perfect Storm": Tax Authorities Expand Their Revenue Hunt -- and Shift Their Focus to Privately Owned Businesses With International Operations; Closely Held and Family Businesses Are at Risk; Owners and Executives Can Face Criminal Penalties; Tax Fraud Specialist Describes the Dangers -- and the Steps High-Net-Worth Business Leaders Should Take Now

NEW YORK, NY--(Marketwire - March 11, 2010) - Companies with overseas operations or transactions -- especially small, privately held ones -- are now a key target for U.S. tax authorities, says Marks Paneth & Shron director.

"If you do business overseas, you're now on the IRS's radar screen," says David Gannaway, a former IRS special agent who is now a director in the Litigation and Corporate Financial Advisory Services Group at New York accounting firm Marks Paneth & Shron LLP.

"It's a perfect storm for tax enforcement," Mr. Gannaway says. "Privately held businesses are less frequently audited, and self-report income and expenses. And overseas operations are complex and provide opportunities to conceal transactions and funds. Because of the weak economy, tax authorities are under pressure to generate revenue and international transactions/businesses are a logical place for them to look."

Mr. Gannaway is available for interviews, and can also author a bylined article that discusses:

  • Why tax enforcement has gotten more aggressive: "In a weak economy, tax revenues are down, and authorities are under pressure to make up budget shortfalls," Mr. Gannaway says. "At the same time, individuals are trying to keep more of their income, and that leads some of them to bend or break the rules. Authorities are more active, and there's more for them to find."

  • Why international business is on the radar: "The IRS first stepped up its enforcement by targeting undisclosed foreign bank accounts," Mr. Gannaway explains. "The voluntary disclosure period for foreign accounts ended last October, and about 150 criminal investigations have been initiated in addition to the cases that have already been prosecuted over the past six months. Following this trend, International business is a logical next step -- it's complex, and complexity creates opportunities for aggressive tax strategies or fraud. Authorities are looking for unusual international transactions, parking inventory overseas, moving or leaving funds offshore for periods of time, recording items as sold when not, transfer pricing that takes advantage of tax havens -- in short, schemes that businesses create through layering foreign companies that reduce taxes will be scrutinized."

  • Why private businesses get special attention: "Private businesses -- closely held or family-owned -- have always been a special concern for the IRS," Mr. Gannaway says. "Public companies are tightly regulated and audited, and there are fewer opportunities to conceal assets and income. Private, closely held businesses, like private individuals, have much more leeway. That means fraud is more frequent. And private businesses are often owned and controlled by high-net-worth individuals, who are also targeted by authorities because they have more options for reporting -- or failing to report than the average taxpayer."

  • Why the consequences can include prison, not just audits, as well as paying additional taxes: "Businesses are audited and pay fines and penalties, but the government doesn't normally charge a business with a crime," Mr. Gannaway says. "Individuals are a different story. Business owners, board members and senior executives are all at risk of criminal prosecution -- either for their fraudulent actions with company funds, or for their intentional failure to report all of their own income, or both."

  • What business owners, board members and executives need to do -- now -- to minimize their risk: "It used to be that an audit was regarded as a known risk of doing business and some played audit roulette," Mr. Gannaway explains. "Business leaders would take some risks in order to avoid paying more tax. But criminal penalties change the picture. Anyone who runs or is involved in a business with overseas operations or transactions and layers of complexity needs to consult -- right away -- with the tax attorney who set up the structures and arrangements. Even if you think you have the protection of legal counsel or can claim a reliance defense based on competent advice, it's worth going back and reexamining the issues or structures. And of course, if you've already been contacted by investigators, you need to work with an attorney and with a tax consultant with a significant background in enforcement issues."

"High-net-worth individuals are more susceptible to audit, and if fraud is involved, more likely to be prosecuted because of their often prominence within an industry or community. The prosecution of a high-net-worth individual often generates more than usual press coverage which underscores the IRS's message that tax evasion will not be tolerated as well as places the IRS in a better position to collect the additional tax, penalties and interest due to the significant assets of the individual," Mr. Gannaway says.

For more information, or to schedule an interview or arrange a bylined article, contact Itay Engelman of Sommerfield Communications at (212) 255-8386 or itay@sommerfield.com.

About Marks Paneth & Shron

New York City-based accounting firm Marks Paneth & Shron LLP (MP&S), has a team dedicated to offering services for U.S. taxpayers disclosing foreign accounts at UBS AG and other foreign banks. The firm has extensive experience in working with high-net-worth individuals and international tax issues, as well as in forensic accounting, litigation support, and negotiating with government agencies. For more information please visit http://www.markspaneth.com/.

About David Gannaway

David Gannaway, MBA, CFE, CAMS, EA is a Director in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth & Shron LLP. In this role, he provides comprehensive litigation consulting services encompassing the areas of forensic accounting, civil income tax controversies and criminal income tax investigations, complex white collar fraud investigations, and anti-money laundering.

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