He Shoots and Misses! Soccer Star Found Guilty of Tax Fraud

Barcelona superstar Lionel Messi "Messi" will want to forget the summer of 2016.  Although winning Spain's domestic soccer cup "La Liga" for an eighth time in May, Messi failed to claim an international title with his native country Argentina in June, followed by a 21-month jail sentence for tax fraud in July.  A tax court in Barcelona found that Messi, along with his father Jorge Messi, created shell companies in Belize, Britain, Switzerland and Uruguay to avoid paying taxes on income earned from his endorsement deals in 2007 through 2009.  

Messi and his father are not expected to spend any time in jail, as Spanish law doesn’t require nonviolent offenders to serve if the sentence is under two years.  Messi maintains he knew nothing of the tax schemes.  An article by Kelly Phillips Erb of Forbes quotes Messi, “I was playing football.  I had no idea about anything."  Spanish prosecutors disagreed, arguing the amounts were so egregious; he must have been involved.

Messi and his father are appealing the sentence.  Experts do not expect the five time ballon d'or winner to spend any time behind bars at the conclusion or expect any ramifications with his endorsement deals or contract with Barcelona, which has already launched an online support campaign.  Messi is not the only one to be caught hiding wealth this year.  Early this year, journalists Frederik Obermaier and Bastian Obermayer released the Panama Papers story, which named many wealthy individuals with secret bank accounts. 

The U.S. tax authorities have been vigorously enforcing rules to make hiding money offshore more difficult.   Since 2007, hiding income offshore has been placed on the IRS's annual list of most frequent tax scams.  The Offshore Voluntary Disclosure Program (OVDP) has collected more than $7 billion since its inception in 2009.  Additionally, criminal proceedings related to offshore tax evasion has led to billions of dollars in criminal fines and restitutions according to the IRS. 

United States federal law defines tax evasion as the, "purposeful illegal attempt of a taxpayer to evade assessment or payment of a tax imposed by Federal law."  There is no statute of limitations where the IRS can establish that a taxpayer has filed a false or fraudulent return or willfully attempted to evade tax.  This allows the IRS to cast a large net, especially around foreign income.  U.S. citizens and resident aliens must report income from all sources within and outside of the U.S.  Fortunately, the United States provides some tax relief in the through the Foreign Earned Income Exclusion (FEIE) and a foreign tax credit for taxes paid on non-FEIE income.

If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($99,200 for 2014 and $100,800 for 2015). Further, you may be able to reduce your U.S. liability by foreign taxes paid.

If you are a US citizen or resident but have not properly reported your income, you may be eligible for the OVDP process or other corrective measures.  Contact us for assistance.

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