Should You Participate in an Offshore Account Tax Amnesty?

Over the last few months and in the wake of the OECD crackdown on tax havens, when talking to my personal consulting clients and handling the free anonymous e-mail consultations we offer to members, I’ve been asked numerous questions about participating in offshore tax amnesty programs like the IRS’s ‘Offshore Voluntary Compliance Program‘ (OVCP), the UK’s ‘New Disclosure Opportunity‘ (NDO) and equivalent programs in many other countries.

Some surprising countries like the Netherlands – including Netherlands Antilles – and Argentina are also getting very agressive with their non-compliant taxpayers and are busy signing Tax Information Exchange Agreements (TIEAs) with offshore havens.

First of all, the usual disclaimers. There is no easy to answer to this question as it depends very much on personal circumstances. International tax lawyers I have talked to are divided in their opinions too. My job here is simply to report what I’m hearing on the offshore grapevine. Nothing here should be construed as tax advice.

The USA  Offshore Voluntary Compliance Program has attracted the severe criticism for being highly ambiguous – even those participating in the amnesty and filing their FBAR forms have received no guarantee that they will not be subject to criminal prosecution later. So, one might ask, what is the benefit of participating in the amnesty? The IRS are effectively saying to taxpayers “you just have to trust us.” Hmm. Any good lawyer will tell you not to trust the opposition. And on that basis many good lawyers have advised clients that it is not in their interests to participate in the amnesty.

Although it has now technically finished, we hear that the IRS may still be offering informal ‘deals’. And the main point of such deals is to collect intelligence on offshore bankers, lawyers, accountants and others who have assisted US taxpayers in tax evasion in the past.

In this regard, I have specifically warned a few clients about undeclared accounts they have in banks that I won’t name in public, but which are likely to be high on the IRS radar. Certain European banks, mainly banks in Switzerland, Austria and Denmark, that I could probably count on the fingers of my two hands, have been very active in the past in terms of marketing their services to Americans. UBS was one of them, but there are others, including some small boutique private banks with mainly American clients.

If the IRS didn’t know about these offshore banks before, they certainly do now. So which banks do you think will be top of the list for auditing with a fine tooth comb once the new QI rules are agreed sometime next year? (More on the new 2010 QI rules coming up shortly in Q Bytes – we are working on that now)

You already know if you are a client of one of these banks or not. In the past, they had representatives travelling worldwide – even to the USA – meeting American clients, often at gatherings frequented by libertarians, banking privacy enthusiasts and the like.

If your hidden account is in a bank with few US clients that has not popped up on the radar, you are undoubtedly in a much more advantageous position. But it’s still not too late to close out your accounts with the affected banks and move assets into a more robust, legally watertight asset protection structure – hopefully including assets that do not trigger reporting requirements (physical gold comes to mind.) By closing such vulnerable accounts as soon as possible, you can minimize (but not eliminate) the risk of detection, since audits should hopefully cover only active accounts.

A second, unstated, purpose of the amnesty programs and the IRS spin machine (press releases etc) is simply to scare people with bluff. A lot of the most productive Americans, who have been the stimulus that brought prosperity, jobs and wealth to their country over past decades, won’t be enjoying a relaxing holiday season this year. We don’t think this is fair, of course.

Although bank secrecy is under attack, it’s certainly not dead yet. On the other hand I’ve been saying for years that it is a BIG MISTAKE to hold unreported bank accounts in your personal name. There are much better ways to legally hide money and protect what is yours. Which are the best offshore banking countries for 2010? We regularly write about such solutions and about the safest and best offshore banks here at Q Wealth Report. We believe in practical, positive advice – not scare tactics.

If you don’t see what you want in our publications, paid-up members are entitled to a free e-mail consultation (subject to the natural limits of my time) and/or to a referral to an expert US tax lawyer we know and recommend based in Panama who can also help with disclosure and amnesty matters.

The IRS have declared the US amnesty a huge success. The UK tax authorities, however, have openly admitted that they are disappointed with the number of people coming through under the NDO. In an effort to attract more, they have extended the deadline through to January 4th.

A separate UK tax amnesty is one negotiated exclusively with Liechtenstein, which it is generally agreed by experts offers very favorable terms to taxpayers. However, only 27 people have come forward so far under this amnesty. From this month, the Liechtenstein disclosure amnesty is being extended to allow UK taxpayers who hold undeclared accounts in other jurisdictions to move those accounts to Liechtenstein and then take advantage of this special amnesty.

Anyway, if you want to be kept informed on this subject it is a regular topic in our weekly Q Bytes newsletter. It is absolutely free, just sign up and confirm your e-mail address. We will not spam you and you can unsubscribe instantly at any time. To sign up to Q Bytes click here.