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Offshore Banking And Asset Protection

Kathleen Peddicord by Kathleen Peddicord
Nov 01, 2010
in Retirement/Living
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Why More Americans Than Ever Are Seeking Options And Safety Offshore

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

Continue Reading: Banking In Belize

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Kathleen Peddicord

Kathleen Peddicord

Kathleen Peddicord has covered the live, retire, and do business overseas beat for more than 30 years and is considered the world's foremost authority on these subjects. She has traveled to more than 75 countries, invested in real estate in 21, established businesses in 7, renovated historic properties in 6, and educated her children in 4.

Kathleen has moved children, staff, enterprises, household goods, and pets across three continents, from the East Coast of the United States to Waterford, Ireland... then to Paris, France... next to Panama City, where she has based her Live and Invest Overseas business. Most recently, Kathleen and her husband Lief Simon are dividing their time between Panama and Paris.

Kathleen was a partner with Agora Publishing’s International Living group for 23 years. In that capacity, she opened her first office overseas, in Waterford, Ireland, where she managed a staff of up to 30 employees for more than 10 years. Kathleen also opened, staffed, and operated International Living publishing and real estate marketing offices in Panama City, Panama; Granada, Nicaragua; Roatan, Honduras; San Miguel de Allende, Mexico; Quito, Ecuador; and Paris, France.

Kathleen moved on from her role with Agora in 2007 and launched her Live and Invest Overseas group in 2008. In the years since, she has built Live and Invest Overseas into a successful, recognized, and respected multi-million-dollar business that employs a staff of 35 in Panama City and dozens of writers and other resources around the world.

Kathleen has been quoted by The New York Times, Money magazine, MSNBC, Yahoo Finance, the AARP, and beyond. She has appeared often on radio and television (including Bloomberg and CNBC) and speaks regularly on topics to do with living, retiring, investing, and doing business around the world.

In addition to her own daily e-letter, the Overseas Opportunity Letter, with a circulation of more than 300,000 readers, Kathleen writes regularly for U.S. News & World Report and Forbes.

Her newest book, "How to Retire Overseas: Everything You Need to Know to Live Well (for Less) Abroad," published by Penguin Random House, is the culmination of decades of personal experience living and investing around the world.

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