Before Investing in Offshore ‘Plan B,’ Maximize Your Tax Plan A

Before Purchasing an Offshore Tax Plan B

Before Purchasing an Offshore Tax Plan B, Maximize Your Plan A

As an international tax law specialist firm, Golding & Golding receives many different types of foreign and offshore tax inquiries from taxpayers across the globe. Recently, there has been a surge in taxpayers contacting us about information they received for acquiring a Plan B ‘offshore’ tax plan. Unfortunately, most of the time these taxpayers are reaching out to us because they have been fear-mongered into believing that they require ten different visas and 20 different passports…’ just in case’ — but this is utter nonsense. Adding insult to injury is that the companies who sell these tax plans are not even tax lawyers or tax professionals. They prey on the fears of taxpayers by letting them know that they too are an expat or have expatriated from the United States…so they understand.

• Would you trust your friend who ate out at a five-star restaurant to cook you the same five-star meal just because he ate at a five-star restaurant? Of course not.

Beware of Offshore Plan B Shysters and Scoundrels

These shysters are selling Taxpayers snake oil by goading them into believing they will be better off by purchasing multiple different passports just in case the world were to blow up with the government swooping in to take all their assets and of course, making the American dollar worthless. Rather than purchase multiple citizenships, usually the best thing Taxpayers can do is to maximize their ‘Plan A’ — not purchase a Plan B, C, and D just in case something were to happen. Not to mention, having multiple investment citizenships and residencies will increase your U.S. tax liability — sometimes significantly.

Why are Offshore Plan Bs Scams?

The reason most Plan B’s are scams is because most people do not require a Plan B. What does a plan ‘B’ even mean?

• • • Does it mean paying six and seven figures to acquire passports?

    • Does it mean investing in countries where you cannot oversee or manage your investments so they can easily be taken  from you?

    • Or, does it mean paying some company a 6-figure consulting fee even though that company has no tax or legal experience, to unnecessary services?

Unfortunately, chances are the person you are speaking with or the company you are dealing with are swindlers. Let’s look at why you do not need a Plan B.

U.S. Worldwide Income

Unlike almost every other country globally, the United States follows a worldwide income taxation model. Therefore, as long as you are a U.S. person for tax purposes, you are subject to tax on your worldwide income and required to report your global assets no matter how many different passports you have.  The only way to eliminate this requirement is to formally terminate your U.S. person status, which may result in significant exit taxes.

Additional Foreign Taxes

Once a Taxpayer acquires assets and investments in foreign countries, chances are they will be required to pay annual foreign taxes or fees on those investments — along with taxes on the income that is being generated.

Wealth Taxes

Some countries have a wealth tax. A wealth tax is different from an estate tax. With a wealth tax, some countries require you to pay annual taxes and fees simply because you have a significant amount of wealth. And, some countries require these taxes even if the investor does not reside in the foreign country.

International Asset Reporting

Once a taxpayer has investments in foreign accounts and assets, there are various income U.S. reporting requirements and foreign account disclosure rules that they must follow. Depending on the number of foreign investments along with the type of foreign investments may result in a significant reporting requirement. In addition, while the income may not be taxable abroad, it may be taxed in the United States.

Higher U.S. Taxes for Foreign Assets

Certain foreign assets such as foreign mutual funds, foreign investments, and certain holding companies generate income that is designated as PFIC (Passive Foreign Investment Companies) under U.S. tax law — and this income is typically taxed much harsher than their U.S. counterparts. For example, whereas a US mutual fund may distribute dividend income that is qualified and taxed at 15 or 20%, foreign dividends are typically taxed at the highest tax rate and do not receive qualified dividend treatment when they are PFIC.

OAPTs are Irrevocable

Several of these online scoundrels try to sell taxpayers citizenship and residency-by-investment visas – but then want to pad it by selling you an Offshore Asset Protection Trust. A few things to consider about offshore asset protection trusts are that they are expensive, irrevocable, and typically require a local individual or company to serve as a trustee — and the local trustees charge very high fees to manage the trust. Most of the time you do not need an offshore asset protection trust but by the time you may realize this you may be hundreds of thousands of dollars out of pocket with no real strategy to unwind or decant the trust.

Foreign Holding Corps (CFC and PFIC)

Sometimes, taxpayers will form a foreign company to hold their assets. It is very important to note that this will make the company either a Controlled Foreign Corporation or a Passive Foreign Investment Company. Either one of these types of structures will result in significant tax liability far beyond the expectations of the investor (Subpart F Income, GILTI, etc.) Thus, before forming a foreign holding company, taxpayers must have a strong understanding of the tax implications of doing so.

Late Filing Penalties May Be Reduced or Avoided

For taxpayers who did not file their FBAR and other international information-related reporting forms in a timely manner, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely completing compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.