OFFSHORE ACCOUNTS 2002

Setting up an offshore corporation to cloak your identity and shield your assets from the prying government makes less sense now than ever.  With your offshore company acting as the host of a credit card that you are trading stocks, purchasing cars, paying bills or getting cash from ATMs --- without leaving a trail. 

The IRS just got a federal court in San Francisco to compel credit card records of U.S. citizens in 30 tax havens such as Bermuda and the Caymans.  They will try to identify the cardholders through U.S. merchants where the cards were used. The IRS, which earlier secured access to the logs of MasterCard and American Express, is looking for an estimated $70 billion in unpaid taxes.  Born by Internet technology and the popular view that the IRS has been declawed by Congress more money has flowed offshore in recent years. 

The IRS projects that there are 2 million cards offshore suggesting that half of the contractors and doctors in America must have several accounts.

Don’t misunderstand, there is nothing illegal in setting up an offshore account.  If you fail to report an offshore account on your taxes, you face a penalty of 75% of the underpaid tax in addition to the taxes you owe.

The Bush Administration, led by Treasury Secretary Paul O’Neill, was unenthusiastic about pursuing offshore havens until September 11.  Then the urgency to tract down terrorists’ funds came to light.  Republican lawmakers had been cutting the IRS budge since the mid –90s.  There are about 5,000 fewer auditors and correctors than there were in 1995, meaning that your changes of being audited this year were about 1 in 173.  Last year the service conducted 732,000 audits, down from 1.9 million in 1996.  Enforcement actions including property seizures dropped from 3.5 million in 1995 to 875,800 last year. 

IRS officials noticed that websites like CaribbeanSecrets.com have been encouraging offshore havens.

Tax lawyers expect the IRS to come down like a ton of bricks on “high profile” offshore accounts to send a message.  The Caymans and other countries have recently signed  information-exchange agreements with the U.S.  And the Patriot Act that Congress passed after September 11 requires U.S. banks to sever ties with cash-laundering “shell” banks in foreign lands.

April 15, 2002