- 1 Offshore Banking & Offshore Accounts
- 2 Unintentional Offshore Banking Non-Compliance
- 3 Is Peter an Offshore Tax Dodger?
- 4 It looks Worse Than it Is
- 5 FATCA has a Negative Impact on Offshore Banking
- 6 How is Offshore Banking Legitimate?
- 7 What Can You Do if You are Out of Compliance?
- 8 Golding & Golding, A PLC
Offshore Banking & Offshore Accounts at Risk due to FATCA & IRS
Offshore Banking and opening Offshore Bank Accounts is nothing new. And, in most instances it is perfectly legal.
While many people associate offshore banking with illegal tax evasion, fraud, structuring, money laundering, etc. (the same way people associate Bitcoin with the illegal Silk Road website) — in most cases, it is simply not true, and the “offshore” portion of the analysis is being taken out of context.
Offshore Banking & Offshore Accounts
In an all-too-common scenario, a non-citizen, non-resident will become a U.S person, and before they know it they are out of compliance, solely because they did not bring their already “offshore accounts” into IRS compliance.
Unintentional Offshore Banking Non-Compliance
A typical example we see: Peter is originally from the United Kingdom. He has worked very hard during his lifetime and has amassed a pretty sizable pension in the low seven figures. He’s a non-US person with no US status.
Peter decides to transfer his UK retirement into a QROPS. There are various (non-U.S.) tax purposes as to why a person may want to transfer a UK pension to a QROPS, but it typically includes moving the pension offshore to Malta (which is a known tax haven at least from US perspective) for preferred tax treatment.
Years later, Peter and his lovely wife decide they are going to relocate to the United States. Their son is finishing up culinary school and plans on building his life in the Big Apple.
Peter comes to the United States, and does not realize all the tax related issues, until he receives a FATCA notice from Lloyds (where he does his primary banking).
Is Peter an Offshore Tax Dodger?
No. In fact, transferring a pension into a QROPS is a relatively common occurrence. Still, from the IRS’s perspective, when Peter submits to one of the IRS Voluntary Disclosure programs or submits a Reasonable Cause statement, he will have to disclose That he has a large sum of money sitting in an Offshore Tax Haven, which does not receive tax-deferred status in United States. Peter will have to further explain why he never reported his six-figure investment income that is being generated offshore in Malta.
It looks Worse Than it Is
It gets worse for Peter, because as he begins reading fear-mongering websites and speaks with some attorneys during free initial consultations, they tell him he most likely go to jail for life, and will have to forfeit all of his money — which is of course, not true.
FATCA has a Negative Impact on Offshore Banking
This whole mess started with FATCA. Why? Because while Peter did have a responsibility to disclose the income and account information to the US government, he clearly was not doing anything illegal or suspicious.
Had Lloyds never sent him a letter regarding the very minimal interest that his account generates, he would have never had to contact the accountant. And, since Peter is actually moving back to the UK where his son found his first paying job, he probably could have escaped the clutches of the US tax system unscathed.
But now, with FATCA in full force, along with increased FBAR enforcement, J5 and other international tax enforcement groups actively seeking out purported tax evaders, even simple mistakes are resulting in unnecessarily serious and financial consequences.
As a result, offshore banking is losing steam.
How is Offshore Banking Legitimate?
At its core, offshore banking is nothing more than moving money into a country that is considered “offshore.” As long as you are properly disclosing the money/account and reporting the income, then there is nothing illegal about it (short of avoiding tax by investing in suspect offshore tax schemes).
And why not? Some people spend a lifetime researching and analyzing different markets in different currencies. For some people it is worth the risk of placing their money into an account offshore with hopes of watching it grow faster and larger than any investment they could make in the United States.
Yes, the investment will not be FDIC insured (not that investments in the US are either), and the investment might be at a higher risk in a volatile world market — but that is for each person to decide whether they want to take the risk or not.
What Can You Do if You are Out of Compliance?
If you have been banking offshore, and have not properly disclosed or reported your foreign income, accounts, assets, investments, or other money — then it is probably a good idea to get into compliance sooner as opposed to later to try to avoid the potentially devastating financial penalties.
*Many of which can be reduced or even abated through one of the IRS Amnesty Programs.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.