Dear Live and Invest Overseas Reader,

The number of American expatriations each year is at a record high, reports an international tax attorney friend. Tens of thousands of Americans a year are moving abroad in search of better lives.

"A root cause," my friend explains, "is how the U.S. government is treating its citizens these days.

"Just about every call I get now related to expatriation is from someone either battling the IRS or afraid of winding up in a battle with the IRS.

"Why? Because the tone of the Internal Revenue Service has reversed in the last five years.

"Historically, if an average American failed to report his income accurately and completely, it was usually a civil or a financial issue. Increasingly, the IRS is turning those sections of the tax code enacted to go after drug dealers and mafia kingpins (think Al Capone) on ordinary citizens, all in the name of increasing revenues.

"These weapons of mass destruction, as I think of them (which the U.S. government in this case has no trouble finding), put regular people in jail for years for failing to file a form or to report income. They are being used not only to go after multi-millionaires and billionaires with huge accounts offshore, but everyday hard-working Americans, as well.

"Here are three examples from my experience. There are hundreds of similar cases being argued throughout the United States right now.

Example #1 - Offshore Account

"I know a single father of three who makes about US$80,000 a year as a self-employed consultant. Eight years ago, he moved some money offshore, to diversify and for asset protection. He never filed the necessary IRS forms, and he failed to report the account on his tax return.

"Unfortunately for him, the account was at UBS Switzerland. He was reported to the IRS, which has decided to prosecute him.

"Here is the rub: He did not have any unreported or untaxed income...which is to say, the account did not earn any interest, and the guy would not have had to pay any additional U.S. tax had he reported it.

"That's irrelevant now. In settlement negotiations, the man is facing up to one year in jail and a fine of US$540,000.

"He has little money left and will never be able to pay the fine. What is the point of the prosecution? The IRS gets to issue a press release showing a conviction in this city. This press release will forget to mention that there is no tax loss in the case, but it may induce many others to come forward...thereby increasing revenues on the back of an everyday citizen who made a mistake.

Example #2 - Cash Transactions

"A retired U.S. citizen I know, living in California, age 60, is concerned about a major devaluation of the U.S. dollar. He decided a while ago that he wanted to purchase gold. He owns a condo with some equity and has a few hundred thousand dollars in retirement money.

"As a regular guy, he can´t afford to buy large amounts of gold bullion, so he purchased gold coins from a local dealer. He paid cash for these coins so the dealer would not have to wait for a check to clear before handing over the merchandise. He has never sold any of his coins, thus there is no tax issue.

"What did he do wrong? He took cash out of his account once or twice a week, always less than US$10,000 at a time, to make the gold purchases. To the IRS, this can qualify as "Structuring," which is a crime.

"The man's bank sent two suspicious transaction reports to the IRS and closed his account. He had been a client of this bank for more than 30 years, yet the bank made no effort to warn him in advance of the reports they made to the IRS or to offer any assistance. They just turned him in.

"As a result, the man is looking at a fine of up to US$100,000 and possible criminal charges that could incarcerate him for up to five years. Add to this a minimum of US$100,000 in potential legal fees, and the reality for this guy is that he and his family could be wiped out. Again, this is all the result of an innocent mistake.

Example #3 - Dual Citizen

"Another client is a 55-year-old engineer who has been working at the same job for 20 years. He is a dual citizen of the United States and the United Kingdom. When he moved to the States, he rented out his U.K. home. Ever since, he has deposited this rental income in a U.K. account.

"The man has filed tax returns in the U.K. reporting the rental property, but he did not report it, or the U.K. account, to the IRS. Had he reported the property and the related rental income all along, it would not have made any tax difference in the United States. In fact, reporting the rental could have reduced his U.S. tax, thanks to the depreciation he could have claimed.

"In 2009, this man learned of the requirement to file an FBAR form and entered the IRS Voluntary Disclosure Program. As a result, this story has a happier ending than the others. This guy will not face criminal charges. He will, though, pay a fine of approximately US$22,000.

"Cases like these and the hundreds of others currently being argued have changed the way that tax attorneys deal with clients. While we once would say, 'Come clean, be honest, and let's get through this,' now we advise, 'Be afraid...be very afraid.'

"It is this culture of fear that is pushing many Americans to look around the world for places where they might live better, freer, and less fearfully.

"I'll note that these changes are not the result of one political party or another. They represent a permanent change in perspective by the U.S. government in general, in how both parties view their citizens. Changes to the tax laws, and in the ways the laws are interpreted, began under George Bush II with the Patriot Act and continue under Barack Obama with the Bank Secrecy Act and the HIRE Act.

"In the face of a troubled U.S. economy and out-of-control spending, the U.S. government desperately needs to expand its tax revenues, and the IRS has decided that it can raise more money with fear and violence than with honey.

"It's a situation that qualifies as dire, and sensible Americans are looking to escape it as quickly as they can."

Kathleen Peddicord

Editor's Note: Experts joining us for our Emergency Offshore Summit next month (Dec. 2-3 in Panama City) will address tax and reporting implications of the Patriot Act, the Bank Secrecy Act, and the HIRE Act in great detail. They will also introduce you to legal and compliant ways to protect yourself, your family, and your assets.

Full details of the program we're planning are here.Continue Reading

• Banking In Belize

"Gulliver awoke to discover his predicament all at once, whereas Americans are only now beginning to see the thousands of irrational political restraints that have hogtied and immobilized them stealthily over decades.

"It's time to wake up, folks. The politicians and bureaucrats who unfortunately control the U.S. government are doing everything they can to keep us - and our money - here.

"But it is our legal right to 'go offshore' financially.

"Big Brother can put as many roadblocks, detours, dead ends, and petty controls as he wants in your path, but that doesn't have to stop you - nor should it - from going offshore.

"The U.S. government - especially the IRS - has done all it can to keep you and your money at home.

"The U.S. Department of Justice and the IRS claim the SEC has extra-territorial magical powers. Apparently, SEC rules extend to all offshore financial activity involving U.S. persons, including banks and investment managers - even those located outside the United States.

"And the IRS, with its 'qualified intermediary' rules, claims U.S. jurisdiction over foreign banks with U.S. clients. The QI program obligates foreign banks to follow IRS disclosure rules - even if they go against their own nation's financial privacy laws.

"Then, of course, there's the recently enacted HIRE Act. This law contains the radical Foreign Account Tax Compliance Act (FATCA) that grants the IRS power to force foreign bankers to spy on their U.S. clients. Unless a foreign bank agrees to tell the IRS about the foreign financial accounts of U.S. persons, the IRS threatens to levy a 30% withholding tax on the bank's U.S.-sourced income. This includes any U.S. securities or U.S. dollars the bank may hold.

"And now, bit by bit, the U.S. government is also tightening the investment, capital, and currency noose, in effect imposing 'soft' currency controls without proclaiming them as such. That's why restrictive U.S. securities laws have hindered Americans from easily investing offshore.

"Here's the good news: Going 'offshore' is an effective way for you to circumvent restrictive laws and regulations - and even expand your wealth.

"The No. 1 reason to go offshore is not simply because you can. It's because you must. It's the only way to get around Big Brother.

"As the U.S. government flexes its regulatory muscle, offshore investing is one of the last remaining ways for smart investors to legitimately safeguard their wealth.

"Now more than ever, it's important to consider these opportunities. There are simply too many new global centers of wealth and power to be ignored.

"Indeed, for Americans, offshore tax savings can be minimal because 'U.S. persons' are taxed on all their worldwide income, no matter where it is earned.

"But you should still consider going offshore. Here's why...

1) Solid Asset Protection

"The United States leads all other nations in lawsuits. Lawsuits seek cash and assets. If your assets are located in the U.S., they're at the mercy of any state or federal court.

"But if they're located offshore, a plaintiff's attorney usually won't take the case. They know they're not likely to collect a judgment. (Sometimes it makes good financial sense to discourage a potential litigant by letting him know just how difficult it will be to reach your offshore assets.)

"Because of defendant-friendly local laws in asset protection and tax haven nations, foreign judgment holders have a difficult time enforcing it. To reach your assets, a successful creditor must start all over, using the foreign judicial process to press a claim. That means the expense of hiring foreign lawyers and paying for travel and witness transportation.

2) Flexible Planning

"Having some of your assets offshore allows more flexible tax planning and inheritance tax advantages, such as the establishment of an asset protection trust (APT), a private family foundation, or a limited liability company (LLC) for business purposes, each of which could have its own bank accounts.

3) Better Privacy

"Offshore accounts offer you a way of legally concealing your wealth from prying eyes (other than government reports that are required). In addition to avoiding becoming a target for extortion and kidnapping campaigns, you may well want to avoid news media attention or relatives or others looking for handouts.

"Protecting your assets offshore is a great way to preserve your wealth. But you can also invest your money offshore to increase your wealth. There are several ways to do this.

"An offshore bank account is an excellent platform from which to diversify investments, with instant access to the world's best investment opportunities, including currencies, precious metals, and real estate, and without being limited by Big Brother's anti-investment restrictions. Foreign stock, bond, and mutual fund trading is not covered by SEC rules.

"You can also buy foreign securities through a trust, a family foundation, or a corporation you have created offshore. Properly structured foreign legal entities are not considered 'U.S. residents, persons, or citizens.' These entities therefore have the right to buy non-SEC-registered securities (as long as the grantor who creates such entities includes income from these sources as personal income on annual tax returns).

"You can set up an offshore brokerage account. The profit potential of cross-border investment is enormous. Until the recession, U.S. stocks performed well over the years, but international stock markets historically have outperformed Wall Street as a whole. And now, a lot of American investors are also opening up brokerage accounts overseas so they can trade stocks directly on foreign exchanges and tap into the greatest possible returns.

"These are all compelling reasons to go offshore. Just remember, the IRS has a web of rules and regulations that aim to wring maximum revenue from Americans who go offshore. These tax laws are extremely complex, so move cautiously and only with expert professional advice."

Kathleen Peddicord

Editor's Note: Attorney Bob Bauman, editor of the Sovereign Society's Offshore A-Letter, will join us in Panama City in December for our Emergency Offshore Summit, where he and our other key offshore experts convened for this important and timely event will discuss in detail all the best current opportunities for protecting your wealth and safe-guarding your assets.

Full details of the program we're planning are here.Continue Reading

• Personal And Corporate Taxation In Panama

First, he realized he was bored. His life in California couldn't be more comfortable, and his practice continued to expand, but it had all grown very predictable.

Second, as an international tax pro, our friend recognized that his own affairs were not nearly as tax-efficient as they could be.

The answer to realizing maximum tax efficiency, our friend knew, was to set himself up offshore.

Our friend also knew, from his decade-plus in the business, that Panama qualifies right now as the world's top tax and doing-business jurisdiction. In the past two years, therefore, our friend has worked toward setting up a mirror practice in Panama City.

During this period, he has divided his time between Panama and California, spending two weeks in each place each month. Thanks to ever-advancing technologies, the set-up is transparent to his clients.

Now, two years later, he's nearly ready to flip the switch. He's rented and furnished an apartment in a neighborhood where he can walk to restaurants, bars, nightclubs, and casinos whenever the whim strikes. He's established an office base and hired a couple of employees. He's started the paperwork for a reforestation visa. He's shopping for a car...

And he's found friends, connections, and, yes, a new girlfriend that mean the difference between relocating and making a new life.

By re-establishing himself in Panama, our friend has achieved his financial objectives.

And, as a bonus, he's reinvented his lifestyle. He's found a nest and feathered it with all the comforts and conveniences of his life back in California.

But, down here in the Hub of the Americas, he's discovering, the day-to-day is anything but predictable. Here in this Tropical paradise, our friend's new life is shaping up to be a little less polished, much more interesting, super business-friendly, and delightfully tax-free.

Kathleen Peddicord

P.S. What else this week?

• Health insurance to cover you in your new country of residence is one of the most important issues you must address as you plan for your retirement overseas. Bottom line, you have three options: an international policy, a local policy, or no policy at all. An international health insurance policy has an important downside: It's more expensive than a local one. Local medical insurance can cost less than US$100 a month. In some countries, depending on your age, less than US$50 a month...


• ''Who knew that a single mother,'' writes new Belize Correspondent Macarena Rose, ''happily raising eight kids (two biological and six adopted) in Florida, could pull up stakes and follow a hunch to a new life in a new land? Who could have predicted that the results of this experience would be a wealth of warm friendships and a profound sense of connectedness to a new country and a new community...plus a thriving new business?
  
  ''In short, that's my story of a journey that began seven years ago and that continues today. I took a chance on life, and the reward has been an extraordinary transformation.
  
  ''How does one get from there to here? The path is different for everyone, of course. I know that many outwardly crave challenge and excitement in their lives and are looking to make dramatic changes. That was not me. I was a mom in Florida, content with the status quo. My life with eight children seemed already an adventure.
  
  ''Then I discovered this Caribbean paradise where English is the native language. I was infatuated from the day a friend told me about the warm, welcoming inhabitants, the natural beauty of the land, the heavenly beaches, and the delightful surf.
  
  ''Maybe what appealed to me most was the promise of leaving all the day-to-day stresses of life far behind and living at a slower pace. Living in Belize, I discovered, I didn't need my Blackberry!
  
  ''Once I was introduced to the idea, I let my imagination go, and I began daydreaming about this culturally diverse place where you can live your life intimately connected to your neighbors. I think many of us fantasize about finding a place with that kind of small-town feeling, and that's just what you find throughout Belize..."
  
  
• This month's issue of the Overseas Retirement Letter, focused on Maceió, Brazil, a very affordable at-the-beach retirement destination, was fulfilled to subscribers Wednesday. (If you're an ORL subscriber, please let us know right away if you didn't receive this current issue.)
  
  As Contributing Editor Christian MacDonald puts it in his report, ''Maceió is the perfect blend. It offers laid-back seaside living and an exciting and vibrant beachfront scene. In other words, it has the beauty, excitement, and energy of some of its larger cousins to the north, without their big-city crime, poverty, or annoyances.''
  
  Christian, who has seen a lot of Brazil, puts Maceió at the top of his list of retirement choices in this country.
  
  Does that mean Maceió qualifies as the world's top retirement haven right now?
  
  Well, maybe. If your agenda is all about an affordable retirement oceanside...


• Panama City continues to remake its skyline, with all the ongoing construction, but also, more and more, with beautification projects like the Cinta Costera, the coastal beltway completed two years ago that transformed the Panama City panorama. More recently, an initiative by Union Fenosa, the national provider of electricity, plans to take city power lines underground.
  
  Great idea. Right now, Panama City streets are sometimes criss-crossed by masses of electrical lines, with the odd shoe or Whopper wrapper caught amongst them...

ALSO From Global Real Estate Investing Guru Lief Simon:

I've recently been elected to the board of directors for the owners association of a building in Panama City where I own an investment property. When they approached me about the idea of running for the position, I said, sure. It seemed like it might be fun.

Fun probably isn't the word. Maintaining a 27-story building is a lot of work. Everyone has his pet peeves and grievances. We listen to them all, meantime spending not an insignificant number of hours each week trying to keep all things in the building functioning, maintained, and constantly improving.

The board president works probably 80 hours a month at this. I hope he's having fun. And I hope all the owners in the building appreciate his efforts. Because, looking around the city, I can tell you that not all condo owners are lucky enough to have someone like him.

One building I know, where a friend has invested, has no working elevators. A recent advertisement for an apartment for sale on the 14th floor of this building tried to make the best of the situation. The ad read, "No need for a gym membership when you live here."

The price was attractive and reflected the lack of elevator access. The problem is that, eventually, the elevator will have to be replaced. This will trigger a special assessment on all owners in the building.

This isn't uncommon. If the cash flow from the regular monthly building fees isn't enough to cover both the costs of operating the building and of required maintenance and necessary improvements, well, the money has to come from somewhere.

Or not. And this is the risk. If owners aren't organized and working together, under leadership like that of the guy currently serving as president of the building where I'm serving on the owners board, then, likely, you'll never be able to get the consensus you need to execute special capital calls.

You'll never be able to get the agreement you'll need to increase the amount of the monthly building fees.

You'll never be able to obtain the required consensus for investing in repairs or improvements.

The bottom line result is that the public areas and amenities in the building will deteriorate.

I make this point because the condo market is growing ever-more-competitive here in Panama City. If you bought a condo in this town as a rental investment or if you're shopping with the thought of buying one now, this is an important point that may not occur to you.

Don't only shop location, building, and price per square meter. Shop building management, as well. Ask about the building association and to see the related documents, including minutes from recent association meetings and financial statements for the building fund.

Years ago, shopping for our first rental apartment investment in Paris, a friend made a recommendation that I probably didn't appreciate enough at the time.

"Try to find out if any big improvements are planned for the building within the next year or two," he told me. "Are they going to add an elevator? Clean the building façade? Relay the cobblestones in the courtyard? Fix a leaking roof?"

Why? Because these are extraordinary expenses. That will have to be paid for by a capital call on all owners. To avoid surprises in your first years as an owner, try to find out what kinds of works are being discussed.

In France, the syndic, or building management association, is a legal entity with a lot of teeth. If your syndic tells you that you have to pony up an additional 2,000, 5,000, or even 10,000 euro to cover repairs or improvements to the building, you have no choice but to comply.

Well, you can choose not to comply, but the consequences are severe. In Panama, on the other hand, building associations are haphazard and mismanaged. Sometimes they exist in name only. If the owners don't pay their monthly building fees, what are the building managers going to do?

In any given building in Panama City, you have a percentage, sometimes significant, of absentee owners. Foreigners who bought the unit as a speculation or a rental investment. They're in the States or Canada or Germany or Venezuela. How is the typical ad-hoc and mismanaged management team in Panama going to chase them down for their US$150 a month?

We're seeing the result of this reality in many buildings right now. Broken elevators, faulty plumbing, ill-maintained swimming pools, uncleaned social areas...

What's your rental apartment worth when the building where it's located is falling down around it? What's your rental return going to be long-term?

At the building where I'm serving on the board, we've set a goal: We're going to make our building the most appealing in the city overall. It's going to be the building that people talk about. We're going to maintain all current amenities at a high level and add new ones every year.

This is how we hope to retain our foothold (and our impressive annual yields to date) as this Panama City rentals market grows ever more competitive.

Thanks to the building management team and, especially, president, we've got the support of all owners. We've got a good amount of capital set aside for improvements over the coming 12 months. And we've got nearly 100% pay-up each month for building fees.

-- Lu J., United States

***

"Thanks to Lief for the 'Happy Tax Day' article. That is the best simple explanation of these issues that I have seen."

-- Elmore S., Panama Circle Member, United States

***

"Kathleen, I want to see if you can help me with something I am about to do. I am a citizen of the United States living in the Philippines where I have a home, a Pilipino wife, and two boys. If I decide to start a business in the Philippines, will I have to pay taxes there and to the United States, too? If my business is in the Philippines and does not have anything to do with the United States, would I still owe U.S. taxes? I'm afraid that, if I must pay taxes in both countries, then I will not have enough left over to even bother with the business in the first place."

-- George D.S., Philippines

I am not an international tax expert, and I strongly recommend you seek help from one before making a big investment of time or money to launch the new business you're imagining.

That said, here's a suggestion: You could set up an offshore corporation for your Philippines business that would qualify for deferred taxation in the United States until any profits are paid out of the company to you personally.

Again, you should have a conversation with an advisor focused on these kinds of issues. However, the good news is that the issue you're worried about isn't as dire as you fear, and, yes, it should be possible for you to avoid and defer U.S. taxes with a proper corporate structure.

• Real Estate In Brazil