I have to revisit a recurring theme: Don’t let the tax tail wag the dog.
Yes, it’s great to save on taxes. We all want to give Uncle Sam as little
as possible. Our Representatives have given us literally thousands of
legitimate ways to reduce taxes. Asset Protection is most certainly
NOT one of the legitimate ways to reduce taxes.
Another one of my often repeated mantras: Asset Protection Planning
will almost never save you any taxes. If you use an Asset Protection Trust
count on NO material income tax savings and probably an increase in
compliance costs.
If somebody advises you that offshore trusts will save you tax, take a
step back and get it in writing. You are almost certainly in the hands of
a scammer. At the very least, you are probably dealing with an unqualified
salesman who does not know what he is doing. Do yourself a favor, at a
minimum get a second opinion from somebody who has significant training
in U.S. taxation of foreign source income.
How do you know if the promises people make to you about saving on
taxes are fraud? SIMPLE… The basic rule is that U.S. citizens are taxed
“on their worldwide income from whatever source derived,”
(a direct quote from the code). There are very few exceptions to this.
Anytime ANYONE who claims that an offshore Asset Protection Trust
or an offshore bank account will save you taxes: RUN. This person almost
certainly is advising you to commit a crime.
The reason I revisit this point and pedantically drive it home is that many
people still do not get it. Their greed overcomes their common sense.
They fall for the load of crap that offshore trusts and offshore entities
owned by U.S. Citizens are not required to pay taxes. The shady promoters
pushing this garbage forget to deal with the thousands of pages in the tax
code and regulations specifically designed to prevent a U.S. Citizen or
Resident from escaping U.S. tax just by forming a foreign entity or
establishing some “secret” offshore account. Yes, there are a few
exceptions to these rules; however, to devise a structure which actually
results in an overall reduction of taxes is technically complex. The
compliance costs are huge and not for the under advised Citizen hoping
to put money abroad and avoid taxes. This just does not happen.
In fact, the IRS specifically requires the reporting of every offshore account
(and if you have unreported accounts, you should remedy this before the
IRS does it for you). Remember, abuse of foreign trusts, foreign entities and
offshore accounts has become a major focus of the IRS. In the VERY near
future the IRS will be matching information on offshore accounts it now
receives from all offshore banks to personal and business tax returns. There
are going to be a lot of doe eyed people paying huge penalties or even going
to jail because they fell for a line they got from some tax scammer
promoting foreign planning as a way to avoid tax. Don’t become one of
these victims.
Things have now changed. The IRS now has the personnel (often ex-CIA),
the computers, the data, and other necessary resources to catch this brand
of tax cheater.
With a few minor exceptions, Asset Protection and tax savings are not
synonymous. Be wary of anyone or any organization that tells you otherwise.
I will probably get an award for the most redundant newsletter ever written.
With that said, I hope it keeps some of my dear readers out of trouble and
out of jail.
Have a healthy and protected week.
Circular 230 disclaimer: In compliance with U.S. tax standards of tax practice
prescribed by the U.S. Treasury that apply to all U.S. tax advisers, please be
advised that any U.S. tax advice in this communication is not intended or written
to be used, and cannot be used, by a client or any other person or entity for the
purpose of avoiding U.S. tax penalties that may be imposed on any
taxpayer.