Never Keep Unaccounted Money Overseas

If you want a dip in the attractive looking tax shelter of offshore investment, pretty soon you will get the dirt on you and you will have bad credit with the IRS as a bonus!

Perhaps there is no such area of scams and dubious claims anywhere else. The scheme is very simple – a promoter lures you to hand him over your money for depositing in some offshore facility in order to hide it from the IRS. Sooner he disappears or tries blackmailing you by threatening to leak the information to IRS!

Some other people are slightly softer. They offer you to setup trusts so that you can hide your assets or income.

There are some legitimate reasons for going offshore. If you are stinking rich with many lawsuits following you, you can sometimes get benefit. So your assets are harder for creditors to take away and your huge cash is protected. In the bargain, you may be required to shell out may be $30,000 or more towards formation of the trust and then several thousand dollars every year to keep the trust going!

There are easy ways to protect your assets

Actually for rest of us, there is a very simple way to protect our assets – don’t do things which will attract lawsuits, purchase an umbrella liability policy and end the matter.

And for those offshore bank accounts for hiding your money, there are better legitimate options to reduce your taxes. Concealing your income in an offshore bank account is not accounted as one of them.

In terms of IRS publication 54, as a U.S. citizen or resident alien, your income from all over the world is subject to U.S. income tax, irrespective of where you are living. In addition, U.S. law requires you to report more than $10,000 kept in a foreign bank or trust on your 1040s. Failing to do so attracts several severe penalties.

The important question – Will you get exposed?

The question is not whether you will be able to successfully hide your income from the IRS, but up to how long you will be able to get away with it.

Mostly in 1990s many promoters of offshore investment companies and trusts made tall claims about how easy it is to evade U.S. taxes. A few things have changed thereafter and some naked truths have come forward –

There is no such country in the world at present which can provide the secrecy covers. Many tax havens like Cayman Islands and Bermuda have started sharing information with the tax authorities from U.S. and E.U. The U.S. and E.U. are not looking just for tax evaders but they are looking for drug dealers and terrorists who have taken the shelter of bank secrecy to their advantage.

The IRS has tracked back millions of transactions from major credit card companies to find out U.S. citizens using plastic to play with those offshore bank accounts where the money is hidden. Thousands of audits are already under way and many more are expected soon.

The IRS has successfully obtained lists of clients from many investment banks, promoters and accountants who were selling such tax shelter schemes. 

Many promoters of offshore investment companies and trusts are in hot water as they are indicted on charges of fraud, wire fraud and criminal conspiracy to defraud the IRS.

There are still several countries like Panama having the secrecy laws and many promoters promise to hide your assets there. But don’t expect them to continue for a longer period of time.

You still have a legal option if you really want to avoid U.S. taxes. You can move abroad, with all the money and renounce U.S. Citizenship. That’s what some where the people like Mark Mobius have done. So you are no longer subject to U.S. taxes (you are still subject to U.S. taxes for income you have earned in the United States!). But then these people give up their right to travel to the United States freely or to expect help from the embassies of United States if things go wrong in the country where they live. That decision is irrevocable, so think several times before you take such a drastic step.

You also need to provide a concrete reason why you moved. If the government arrives at a conclusion that you left for avoiding taxes, it can make you pay taxes for up to 10 years from the date you moved!

If you still think that money is more valuable than U.S. citizenship, then get rid of it and don’t allow the door to hit you back when you move out!