December 3, 2009

What of Offshore Banking?

The recent IRS UBS settlement has created a ripple effect that has far-reaching repercussions on many parties. So which are the parties involved and how does it affect them?

The most obvious repercussion is the adverse image this has given to legitimate offshore banking as a whole. Many people maintain bank accounts offshore for reasons of privacy and to protect their assets from creditors. But legitimate offshore banking has become decidedly less attractive due to the IRS' aggressive pursuit of tax dodgers who use the offshore banking system to hide their assets and avoid paying taxes on them. Potential offshore banking depositors will begin to wonder if it is all worth the trouble maintaining their assets offshore. In reality, those who start offshore bank accounts incur expenses like payment to a foreign custodian, a foreign trustee and an investment manager, not to mention engaging a US tax specialist to order everything such that it is reportable to the IRS. In addition, these honest investors will also be alarmed wondering what other personal matter will be exposed next.

Furthermore, investors interested in having offshore bank accounts will very likely spread out their assets among various banks and wealth managers and not put all their eggs into one basket. Instead of investing all their wealth into one account in one bank, investors will divide their assets into accounts with various banks in different places.

The IRS crackdown on these suspected tax evaders has severely affected the offshore banks themselves. Since the investors will reduce the amount of money they have in any one bank, it has become less lucrative for offshore banks to accept business from high net worth non-resident clients.

It follows that financial advisors especially tax consultants whose job it is to advice clients in how to start offshore accounts will face increasing scrutiny. One of the tenets of the agreement between the IRS and UBS is that the IRS has the right to investigate the intermediaries who assisted and advised the American taxpayers in stashing their cash overseas to avoid taxes. Such intermediaries include accountants, lawyers, tax advisors and other financial professionals. Last Friday, two intermediaries, a Swiss banker and a lawyer were indicted by the US Justice Department of arranging tax evasion strategies in offshore accounts for wealthy Americans clients.

Lastly, the settlement between the IRS and UBS has indirectly caused more and more states to offer various forms of asset protection techniques themselves since offshore banking has become less attractive.

Where this will all finally lead to is anyone's guess at present.

Darrin T. Mish is a veteran, nationally recognized tax attorney who has focused on providing IRS help to taxpayers for over a decade. He regularly travels the country training other attorneys, CPAs and enrolled agents on how to handle their toughest cases with the IRS. He is highly ranked among the top attorneys in the country, with an AV rating from Martindale-Hubbell and a perfect 10 on Avvo.com. Martindale-Hubbell has also honored him with a listing in their Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With clients on every continent but Antarctica, he has what it takes to solve your IRS problems no matter where you live in the world. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 1-888-GET-MISH.

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