The Dilemma of Offshore Accounts

The United States government is cracking down on illegal foreign accounts, which is quite ironic considering that some new laws and proposals may entice the wealthy folk to move more money to foreign accounts.

The IRS, through new legislations that took effect in 2011, requires taxpayers with offshore assets to make extensive disclosures of those assets or risk severe penalties. The aim of the legislation is to unearth secret accounts used to skirt United States taxes.

The U.S. government has employed this legislation as a follow up on the crackdown of illegal offshore accounts that has been going on for three years now, and which has, since 2009, led to 36 convictions, although more are expected.

Despite spirited efforts by the government and the IRS, some people are finding new opportunities of channeling funds to offshore investments that are fully legal. This out flux is expected to increase, even the more, if the tax deductions for upper income earners are cut by the congress and the 3.8% investment income tax, scheduled for 2013, proceeds as planned. This means that current and future owners of offshore assets have a lot to consider as the new tax year approaches.

The IRS is okay with foreign assets that are held in banks or brokerage firms based in the United States, as it is already aware of the income generated from such accounts. The IRS recognizes that offshore accounts can be held for several genuine reasons, like joint business accounts with relatives that are based in a foreign country. However, such income from foreign based accounts must be disclosed regularly under the tax code of the United States mainly because some individuals have, in the past, been stashing assets in foreign accounts in a bid to escape taxation in the U.S.

The IRS has in the past, exhibited leniency by holding two limited amnesties for taxpayers with offshore accounts. More than 30,000 taxpayers in the U.S. have taken advantage of the amnesty and stepped forward to clear back taxes, which are accompanied by stiff penalties, to avoid criminal charges. The IRS collected details from such taxpayers and is using the information to track down other defaulters with offshore accounts.

Honest and law abiding individuals in Canada with dual citizenship of the U.S. and Canada have found themselves in a technical violation of the offshore assets rule. Some have come to an agreement with the IRS to pay a penalty of 25% on the highest value of a wide range of offshore assets since 2003, regardless of whether those values have since fallen.

In response to several offshore scandals, Congress in 2010 passed the FATCA (Foreign Account Tax Compliance Act). The act applies to both individuals and financial institutions and seeks to rein in on evasion of offshore taxes. Taxpayers will need to file a new form disclosing foreign assets for assets exceeding $50,000.

Some individuals put investments in offshore corporations with an aim of preserving deductions that would not apply if a similar investment was made in a local based entity.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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