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The IRS forecasts an annual tax gap of $400 billion dollars or so depending on the year. A good chunk of this missing tax revenue is believed to be in offshore accounts held by Americans, but not reported. The IRS has stepped up its pursuit of such accounts and methods for finding them. Going offshore is absolutely legal. There is no law that prohibits you from opening a bank account or investing in the Cayman Islands, Switzerland or some other exotic location. The key, however, is you must report any gains you make on such money and pay the appropriate taxes. This is where most people get into trouble. Who will know? This is the overriding temptation of most Americans who go offshore and don’t pay taxes on their profitable activities. There is a certain logic to the question, but also a certain fallacy. The IRS may trace transfers to you from offshore to find accounts, but it also relies on time-tested basics like tips from angry ex-spouses, workers and so on. And then there are the really creative approaches. Most people don’t realize the IRS has a criminal investigations department. Well, it does. This department is charged with numerous tasks, but one is coming up with ways to track down offshore activities. Following 9-11, the power and abilities of government agencies to do this has become very high. One strategy of note the IRS now uses is the undercover agency. Let’s say you meet a promoter who tells you about an offshore trust scheme that can help you legally avoid taxes. You doubt the legality of it, but figure nobody will know so why not. Well, do you think that you are his only client? Of course not. He might have 10, 100 or 1,000 clients. This is particularly important to consider since one of them may be an IRS agent. The IRS often investigates offshore promoters by sending in undercover agents. These agents act as clients. When sufficient evidence has been developed of a crime, the agency pounces and arrests the promoter. Guess what happens next? Yes, the promoter hands over his client list. You are on that client list and about to be in a heap of trouble. Going offshore is legal if you pay the appropriate taxes. Make sure you avoid coming up on a client list of a busted promoter and you’ll have nothing to worry about. Thomas Ajava is with PhoenixTaxAttorneysTopRated.com - your online site for top rated Phoenix tax attorneys that can assist you with offshore and other tax issues.
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