Tl;dr: The #PanamaPapers

Note: if, for some reason, you’d rather get this information in the style of a morning newscast rather than read it, I’ve got a link for you at the end of the post.

You’ve probably heard by now about the Panama Papers leak: basically, the International Consortium of Investigative Journalists got 40 years of documents (about 11 million documents, or 2.6 terabytes of data) from Panamanian law firm Mossack Fonseca.

Mossack Fonseca apparently specializes in creating offshore entities and otherwise providing the tools people need to hide their money. (Note that the law firm claims it didn’t do anything wrong, and that there are non-illegal and -immoral reasons for putting money offshore.)

Even though there’s nothing Mormon about the leak, it’s a big enough thing that Mormons (and, frankly, everybody else) should know something about it. In Q&A format.

What’s the Scope of Offshore Money?

It’s naturally hard to nail down (because it is, almost by definition, hidden), but Gabriel Zucman of the London School of Economics estimates that there is about $7.6 trillion in tax havens. His is neither the highest nor the lowest estimate, but his methodology is relatively convincing.

Why Do People Put Their Money Offshore?

There are plenty of reasons, most of which involve hiding it. Many of the reasons we’d consider bad: hiding money from creditors, from a spouse, or from taxing authorities. Some, though, aren’t. In countries with unstable or corrupt governments (think, for example, Syria), there could be reasons to have money out of the reach or knowledge of the government.

But Not Everybody’s Hiding Their Money Offshore

That’s right. Apple, for example, has about $181 billion offshore. That money isn’t hidden; there may be issues with their keeping so much cash overseas, but there’s nothing secretive about it, and it’s not what the Panama Papers are getting at.

What If I Have Money Offshore?

Look, there is nothing inherently wrong with having money offshore. But if you have more than $10,000 in offshore bank accounts, mutual funds, or certain other kinds of accounts, you have to file an FBAR with the IRS. Every year. (Also, if you own a foreign corporation, you may be subject to all kinds of complicated tax requirements.)

Fine. But What If I Have Money Offshore and I Don’t Want to Pay Taxes?

Our one Mormon-specific response: if you don’t pay your taxes, you’re in “direct conflict” with the teachings of the church. On the other hand, if you’re looking to put your money offshore to avoid paying taxes, that direct conflict’s probably not going to stop you.

So now we’re getting to the heart of the Panama Papers. Here’s the deal: the US taxpaying system is a voluntary system. That doesn’t mean you can choose whether or not to pay your taxes, of course. (Or, rather, you can, but you can’t avoid the consequences of not paying.) What voluntary means here is, you tell the IRS how much you earn. I mean, the IRS has ways to check, but it can’t check on all types of income you earn. If you have money offshore and don’t file your FBAR, the IRS may never find out you have it.

So You’re Saying I Should Hide Money Offshore and Not Tell the IRS?

Absolutely not. I said the IRS may never find out about your money.

But it probably will.

The US passed a law called FATCA, which puts significant pressure on foreign banks and financial institutions to disclose the identities of their US account holders. And, with that law in the background, the US has entered into agreements with about 112 other governments to exchange that kind of information automatically. And non-US governments are replicating these types of information exchange agreements with each other.

Even without FATCA, though, the Panama Papers aren’t the first tax haven leak; a couple years ago, the ICIJ published Luxembourg leaks. And before that, a Swiss banker offered to sell Swiss bank data to Germany. The US Department of Justice is already looking at the leaks (as are various other governments). Wherever you hid your money could easily be next.

And US taxpayers are legitimately scared. Since 2009, the IRS has provided a number of opportunities for taxpayers with hidden offshore accounts to come forward and disclose them. Along with the disclosure, taxpayers have to pay back taxes, interest, and enormous penalties on the accounts, but the government agreed to waive criminal penalties. And more than 45,000 people have come forward, paying more than $6.5 billion in taxes, interest, and penalties.

Okay, That’s Well and Good. Except My Eyes Glazed Over. Is There Any Way You Could Say It In a Morning News Show Format?

You’re in luck. This morning I was on Good Day Chicago talking about this very thing. You can watch it here if you want.

Also, the stories are going to be fascinating; you really should follow @ICIJorg on Twitter, or periodically look for #panamapapers and #PanamaLeaks.