Saturday, December 10, 2011
Wall Street Journal Tax Report, What's Next for Offshore Accounts?, by Laura Saunders
Here's an irony: Even as the U.S. government is cracking down on illegal foreign accounts, other new laws and proposals could present big incentives for the wealthy to move more money offshore.
New rules affecting 2011 tax returns require taxpayers with assets held offshore to make extensive disclosures to the IRS or risk harsh penalties. The goal: to ferret out secret accounts used to skirt U.S. taxes.
This is only the latest turn in the U.S. government's three-year crackdown on illegal offshore accounts, which already has resulted in 36 convictions since 2009, with four cases still awaiting trial and many more expected to come.
Yet despite Uncle Sam's aggressive campaign, some advisers are seeing new tax advantages—fully legal—in investments based offshore. That edge could grow if Congress cuts tax deductions for upper-income earners and the 3.8% tax on investment income takes effect in 2013 as scheduled.
So if a taxable investor faces a choice between an offshore investment fund and an onshore version, "we find that many are better served by the offshore version," says Robert Gordon, chief executive of Twenty-First Securities in New York, an adviser to the wealthy.
The upshot: Both current and future owners of foreign-based assets have much to consider as the new tax year approaches. ...Even as the IRS cracks down on illegal offshore accounts, financial advisers to the wealthy are spotting new opportunities for generous—and legal—tax breaks offshore.
David Miller, a partner at Cadwalader, Wickersham & Taft in New York, says the U.S. tax code is encouraging Americans to move money offshore, and has counted a dozen legal ways to minimize taxes by doing so. ...Among the other benefits of such offshore funds: Holders can take state-tax and other deductions curtailed by the alternative minimum tax; avoid some or all of the 3.8% Medicare tax on investment income taking effect in 2013 for most couples with adjusted gross income above $250,000 ($200,000, single); and avoid limitations on itemized deductions for upper-bracket taxpayers, which have been proposed by the Obama administration.