What is an Offshore Tax Nomad and Why it Doesn’t Work
Contents
- 1 Offshore Tax & Wealth Diversity Ploys to Avoid
- 2 First, what is your Ultimate goal?
- 3 Are Global Citizenships Good?
- 4 Will You Even Lower Your Taxes?
- 5 Offshore Trusts are Complex and Hard to Unwind
- 6 Are these Foreign Countries You Want to Invest in?
- 7 Late-Filing Disclosure Options
- 8 Streamlined Filing Compliance Procedures (SFCP, Non-Willful)
- 9 Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)
- 10 Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)
- 11 Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)
- 12 Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)
- 13 IRS Voluntary Disclosure Procedures (VDP, Willful)
- 14 Quiet Disclosure
- 15 Late Filing Penalties May be Reduced or Avoided
- 16 Current Year vs. Prior Year Non-Compliance
- 17 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 18 Need Help Finding an Experienced Offshore Tax Attorney?
- 19 Golding & Golding: About Our International Tax Law Firm
Offshore Tax & Wealth Diversity Ploys to Avoid
Your U.S. tax problems do not end just because you move offshore. For some U.S. Taxpayers, moving offshore using an Offshore Plan B to reduce taxes and diversify their wealth is very alluring. This is especially true for individuals who have worked very hard and earned their wealth through their own blood, sweat and tears. The problem is the internet is littered with scam artists and shysters who use glossy marketing promotions to sell tax and legal strategies that simply do not work. Most of these individuals who operate are neither licensed Tax lawyers nor Tax Professionals. Instead, they are just salespersons and Internet personalities who use contrived YouTube marketing ploys to sell you what you want to hear. In most circumstances, wealthy taxpayers who want to reduce their taxes by going offshore must formally expatriate from the United States to derive any tax benefit — and this leads to unanticipated limitations in future travel and ability to invest in the U.S. In other words, instead of reducing your taxes, you will increase your taxes, limit your investment choices, and lower your ability to expand your business in the U.S. Most of the non-professional tax strategies simply do not work and have just been pieced together by non-professionals without any real tax or legal experience. Let’s work through some examples: *For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.First, what is your Ultimate goal?
Yes, you want to pay less tax AND these shysters know that, so they prey on your desires to avoid taxes knowing you are watching their marketing presentations — but without explaining what comes next in your life after you move offshore. Sure, the videos may show glamorous settings and high-end properties but is it feasible and will you save money? If you’re a US person and your goal is to reduce your tax liability by going offshore then 9 out of 10 times you are going to have to formally expatriate. You will be considered a covered expatriate and this will result in an exit tax. In addition, if you are considered a covered expatriate at the time you exit, it will impact your ability to form a business overseas and give gifts to U.S. citizen relatives — since the latter will come with a hefty gift tax that has to be paid at the time the gift is made.Are Global Citizenships Good?
If you are a U.S. citizen and you want to reduce your U.S. taxes by going offshore, chances are you will land on one of a few YouTube marketing websites that will lead you down a rabbit hole and into believing you must purchase (through them as the middleman receiving a large fee) one or more global citizenships. What they fail to tell you is the real-life tax implication:-
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Example: Brian purchases a global citizenship with the idea that he may expatriate in a few years. In the meantime, as part of the purchase he is required to invest in certain investments funds in that foreign country. He also must maintain that investment for several years. But, since he is still a U.S. person with foreign fund investments he is now required to file multiple international reporting forms such as the FBAR, Form 8938 and Form 8621 — or risk significant fines and penalties.
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Example: Belinda purchases a global citizenship with the idea that she wants to travel the country in anticipation of moving overseas, but she does not want to use or give up her U.S. citizenship/passport. The company convinces her that purchasing the global citizenship is a good idea. She moves some of her foreign assets into this country and into a neighboring country based on the advice she received (non-legal, non-tax advice). As she begins to put together, her estate attorney explains that since she has foreign assets the estate plan has become much more complicated (and expensive) and that foreign country has its own specific tax and fees for non-residents who maintain assets in that foreign country — something her ‘global citizen marketer’ failed to tell he when he convinced her to pay 6-figures to purchase a global citizenship.
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Will You Even Lower Your Taxes?
The way these marketers sell you is that they know you want to pay less tax (who doesn’t want to pay lower taxes, right?). They know you have worked hard for your money and if you land on their website, YouTube channel, or Instagram page — you have now entered their rabbit hole and this is their only opportunity to sell you. Oftentimes it is the long con with several videos that all fail to explain that your overall net effective tax liability does not go down, but may even go up!-
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Example: Charlie decides that he wants to move offshore and he uses one of these services to help him transition overseas. The company starts out responsive and (seemingly) helpful but then over time the response time wanes. After speaking with a tax law specialist, Charlie learns the company failed to inform Charlie that now that he lives overseas in the foreign country as a resident he has to pay a income tax rate higher than he would have paid in the U.S. under the country’s resident rules. In addition, the investments that Charlie made in a third party country are taxable in that other country as well as in the United States because Charlie is still considered a U.S. person.
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Example: Against his better judgment, Chris hires one of these marketers to assist him with expatriating. The company pitchman is not a tax attorney nor a CPA. While he gets Chris to begin the process, he fails to tell Chris that even though his equities are below $2 million, since Chris has $6 million in foreign pension that was all accumulated while he was a U.S. citizen living overseas he now has to pay a six or seven figure tax bill when he expatriates (the step-up rules would not apply). This will also impact Chris’ ability to give future gifts to other U.S. family members which he was hoping to do tax free but now that he is a covered expatriate, the recipient will have to pay upwards of a 40% tax at receipt of the gift.
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Offshore Trusts are Complex and Hard to Unwind
Many of these online marketers try to sell taxpayers on not only purchasing foreign citizenships but forming offshore asset protection trusts as well. Of course, the marketers do not tell the taxpayer that they receive a large referral fee from the foreign trust company. Moreover, the marketer fails to inform the client that not only are these trusts irrevocable but they often come with a very high annual licensing fee and are very tough to unwind if not impossible without forfeiting some, if not all of the assets in the trust.-
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Example: Evan is a U.S. citizen who is considering giving up his U.S. citizenship. He was sold into one of these Plan B ploys and decides to not only purchase a global citizenship but he also forms an offshore asset protection trust. Evan was not planning on moving overseas for a few years, but he now has to pay a five-figure annual fee just to maintain the trust. And, even though he no longer wants to keep the same asset, the trust the decanting rules are very complex and the fee to transition some assets out of the trust and new assets into the trust are not worth it.
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Example: After a few years, Evan determines that he was misled and that he no longer wants to give up his U.S. citizenship. Evan wants to dissolve his offshore asset protection trust, but unfortunately since it is an irrevocable trust it is not possible for him to cancel the trust at this time. In addition, he is unable to access some of the funds that are in the trust. So now not only does he have a trust that he no longer needs or wants, but he cannot access the money in the trust and he has an annual five-figure administrative fee for keeping the trust active (which he must do in order to avoid forfeiting the assets in the trust).
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