The U.S. is the only industrialized nation which has determined that they are within their rights to make non-resident U.S. citizens account for and pay taxes on their world wide income. All other western industrialized nations take the position that once their citizens are living abroad, they will not seek to impose a unilateral tax on all investments and other sources of income. Only the U.S. takes this liberty.
With this as a background, sovereign countries which offer banking privacy to U.S. citizens are generally considered tax havens. The U.S. is using every means at its disposal to force all nations through treatises and other agreements to provide the exchange of information from financial institutions on U.S. citizens and residents. Even Switzerland, which is listed as a tax haven by the U.S. will make records available to the U.S. if it is proven you’ve committed a crime such as tax evasion, or fall under any category of crimes such as terrorism, tax evasion or money laundering. More information is available on wealth is at risk due to privacy erosion.
The US government is increasing its efforts to prevent tax evasion and offshore investing through a variety of means.
Their efforts include using the internet (to capture key words or phrases), cell phone call interceptions without warrants, referrals from external sources, media research and many other tactics. As of April 2005, “the courts ha[d] issued injunctions against 99 abusive scheme promoters –– 81 permanent injunctions and 18 preliminary injunctions. They have issued injunctions against 17 abusive return preparers –– all permanent injunctions. The Justice Department has filed an additional 49 suits seeking injunction action –– 28 against scheme promoters and 21 against return preparers……. Many of the injunctions, obtained in cooperation with the Department of Justice, also order the promoters to turn over client lists and to cease preparing federal income tax returns for others. Signaling a renewed fight against tax fraud, the federal government stepped up the use of civil power four years ago.” IRS FS-2005-15, April 2005.
Since 2000, the U.S. announced that they would seek sanctions against tax havens unless they agreed to enter into treatises with the U.S. and other industrialized nations to allow the investigation and pursuit of tax cheats to counter-act terrorism and money laundering. The Financial Action Task Force (FATF) has noted increasingly sophisticated combinations of techniques, such as the increased use of legal persons to disguise the true ownership and control of illegal proceeds, and an increased use of professionals to provide advice and assistance in laundering criminal funds. In 1996, FATF made “Forty Recommendations” which have been endorsed by more than 130 countries and are the international anti-money laundering standard. In October 2001, FATF’s mandate expanded to ensure that financial institution secrecy laws did not inhibit implementation of the FATF Recommendations.
In October 2008, the provisions on reporting required for foreign bank and financial accounts by US citizens, US residents (including snowbirds who meet the substantial presence test and fail to file a Closer Connection Exception), green card holders, self-employed nonresident aliens engaged in business in the US, foreign corporations with a US presence that have US employees with applicable signing authority, have been revised. Thousands of Canadians unknowingly fall into this category every year. Since there is no statue of limitation for “tax fraud” Canadians and anyone who fails the test may one day find Uncle Sam asking for money. If you think Canadian law will protect you think again. The civil penalty for failure to file for each account is the greater of $25,000, or the balance in each account (to a maximum of $100,000 for each account). (CFR 31 103.57(g)(2)). The reward for informants is the lesser of 25% of the amount collected or $150,000. The IRS is on a hunt for assets and under-reporting of income by US citizens and US residents or entities considered resident for tax purposes.
Despite the current reporting required, for risk management and asset diversification, business owners, professionals and affluent individuals should consider utilizing international investing diversification because:
1. Every 30 seconds a lawsuit is filed in the US.
2. Executive Orders have increased executive presidential authority.
3. Under the October 2008 Troubled Asset Relief Program, (TARP) The Secretary of the Treasury is invested with the authority (§ 101(C)(3)) to “. . designat[e] financial institutions as financial agents of the Federal Government, and such institutions shall perform all such reasonable duties related to this Act as financial agents of the Federal Government as may be required.”
4. Increasing federal debts put governments under pressure at local, state and federal levels for services, programs and entitlement programs.
5. The increased need by governments for tax revenue due to the costs associated with an aging population which will continue unabated for years to come.
6. The increase in money supply means at some point there will be increased inflation due to suppressed interest rates by governments to artificially attempt to stimulate world economies. Since August 2008, the Federal Reserve has expanded its balance sheet from about $900 billion to more than $2.2 trillion, creating $1.3 trillion that did not exist to replace some of the billions wiped out in the financial crisis. Based on the size of the recent bail-outs, as well as new spending by the current administration we all need to be concerned about inflation and minimizing our tax liabilities where possible.
There are suitable, legitimate opportunities available for international diversification and investing. Local advisors and CPAs even your attorney will not be permitted to discuss let alone recommend beneficial strategies due to the changes in US laws tax laws. Jurisdictional and legislative provisions in their licensing preclude them from adequately advising on these matters. International investing offers some protection of assets and wealth as long as the intent is not to hide assets or income outside the US.
Disclaimer: The United States Treasury Department has issued final regulations governing the issuance of written tax advice commonly referred to as “Circular 230” rules. Circular 230 contains new extensive due diligence requirements for “covered opinions” and “other written tax advice”. It also sets forth minimum required practice rules with respect to a written discussion of a federal tax issue. The regulations are intended to bolster the efforts of the Treasury Department and the IRS to combat abusive tax shelter advice and to enhance public confidence in the honesty and integrity of tax professionals. The regulations are also intended to deter taxpayers from engaging in abusive transactions by limiting or eliminating their ability to avoid penalties through inappropriate reliance on tax advisor’s advice. Additionally, the regulations are aimed at preventing unprincipled tax advisors and promoters from marketing abusive transactions to large numbers of customers based on opinion that fails to consider adequately the facts of the particular transaction. The information on this Site does not constitute tax advice and was not written or intended by Bill Faiferlick, Financial Strategist, LLC to be used 1) to avoid any penalty that may be imposed under federal tax law, or 2) for promotion, marketing or recommending to another person the transaction(s) or matter(s) addressed herein. If you intend to seek tax advice then you should seek advice based on your particular circumstances from your advisor.