TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Saturday, December 10, 2011

WSJ: What's Next for Offshore Accounts?

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.

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Cry me a river. The most recent amnesty yielded $2.5 billion. The amnesty coughed up 4,500 accounts for UBS alone. Figure charitably, that half of those accounts are unclaimed property situations or accounts from low-buck dreamers who want a secret bank account for its own sake, that's still 2200 people with very significant assets stashed in secret accounts in one bank.

For a state the size of say, Georgia, that's about 75 of these job-creating superheroes with thousands or hundreds of thousands of dollars of untaxed money in secret Swiss bank accounts--from just one bank, UBS.

Posted by: jim harper | Dec 10, 2011 1:05:55 PM

Greed driven, these people should be punished. Close the loopholes discovered by Cadwalader and confiscate the accounts. End the "myth" of "job creators" where these wealthy individuals have no real interest in creating jobs, but instead are driven by their own "need for greed".

Posted by: Nick Paleveda MBA J.D LL.M | Dec 12, 2011 8:52:15 AM