Does the ‘Holistic’ Offshore Tax Approach You Purchased Work?

Does the ‘Holistic’ Offshore Tax Approach You Purchased Work?

Does the ‘Holistic’ Offshore Tax Approach You Were Sold, Work?

Recently, we have had many U.S. taxpayers approach us who were sold on offshore tax and wealth planning strategies that purport to result in little to no tax liability by moving overseas, acquiring various investment visas and second citizenships, and paying an unlicensed, non-tax, non-legal professional tens of hundreds of thousands of dollars. After carefully reviewing many of these approaches, it does not appear that any of them are effective for their purported uses.

In other words, it is easy to tell someone in theory that they can avoid taxes by:

• • • Moving the country ‘X,’

    • Obtaining a passport from country ‘Y,’ and

    • Working in country ‘Z’ to avoid tax

— but in reality, these plans do not typically work in the way or method they are intended. Let’s look at some key issues we find when taxpayers approach us with their concerns about becoming a global citizen and paying zero tax.

U.S. Citizen, Worldwide Income

The first and most important fact that any taxpayer who is considering going offshore must know, is that the United States taxes individuals based on their U.S. person status. In other words, if a person is a U.S. citizen, lawful permanent resident, or foreign national who meets the substantial presence test and lives overseas, then they are taxed on their income whether or not it is sourced in the United States and whether or not they’re paying tax in a foreign country — and/or if the income is tax exempt in that foreign country just purchasing various citizenships and investment visas across the globe does nothing to reduce your U.S. tax liability.  

Expatriation and Exit Taxes

To reduce U.S. tax liability as a U.S. person, a taxpayer must formally terminate their U.S. person status expatriate from the United States prepared for U.S. citizens, especially high net worth or high-income taxpayers, chances are they will face a significant exit tax. Once the taxpayer prepares a cost-benefit analysis of paying the exit tax versus not getting taxed on their forward income, oftentimes the squeeze is not worth the juice.

Offshore Investment Roadblocks

Even though a taxpayer may formally renounce their U.S. citizenship, the other problem is that they were born in the United States. While Foreign Financial Institutions (FFIs) should not be concerned about opening bank accounts for non-us persons, when these FFIs learn that the taxpayer was born in the United States, sometimes they will prevent the taxpayer from opening an account even though they have formally expatriated. The reason why, is that many foreign financial institutions are worried about FATCA (Foreign Account Tax Compliance Act).

Travel Restrictions to the U.S.

When most taxpayers see the bells and whistles about going offshore, it is because they want to reduce their U.S. tax liability and not necessarily because they want to ‘escape’ the U.S. But, because the United States changes the visa laws and restrictions constantly, and depending on how long a taxpayer wants to reside in the United States after giving up their U.S. citizenship, they may be severely restricted in terms of how often they can travel. For taxpayers with family members and especially elderly parents in the United States, this can pose a logistical nightmare.

Getting Back in Line to Become a U.S. Person

Some taxpayers have approached us after going through one of these online offshore tax service shams and decided they wanted to get their U.S. person status back have been having the problem is it is not that simple. Taxpayers essentially must get back in line again to begin the process and new and it is much more difficult these days than it was in years past. Thus, it could be many years before a taxpayer can become a U.S. citizen again.

Golding & Golding: International FATCA Reporting Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and expatriation.

Contact our firm today for assistance with getting compliant.