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| Flags of Convenience |
Overseen Overseas
Michelle Seaton
06/15/2005
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External Revenue
Service
All U.S. citizens must pay taxes on their worldwide income, and that specifically includes income from offshore investments. “The law says that no matter where you live in the world or where your income is sourced, you are liable every year to file your 1040 form,” the Sovereign Society’s Robert Bauman says. “That means the IRS at least has to know about your offshore investments.”
If you have an offshore bank account that has had more than $10,000 in it at any time over the tax year, you must declare it on Schedule B of your income tax return. You also need to fill out a more detailed form—TDF 90-22.1—and file it with the Treasury by June 30 of the year after your reporting. “If you do not comply with either of those reporting requirements, the penalties are extremely serious, including, in certain cases, criminal penalties,” advises attorney Michael Chatzky, an asset protection specialist in La Jolla, Calif. —John Ferry |
“People are amazed when trying to open a bank account here in Panama,” says Derek Sambrook, a financial advisor with Trust Services in Panama. “In many cases it’s easier to open an account in Miami than it is here. In some cases they’ve tightened the screws too much.” According to Heller, the Cayman Islands is no better. “It’s a different world today than it was 10 years ago,” he says. “They want references from you and letters of recommendation from your bank. They want to know how you made your money.”
The 9/11 terrorist attacks delivered perhaps the final blow to Americans who want to hide assets offshore. The Bush administration quickly connected clandestine worldwide banking activities of any kind with terrorism. It was easy to link terrorism to money laundering; the step from money laundering to offshore tax havens was a small one. The new emphasis on security set the stage for the Patriot Act, which requires financial institutions, now broadly defined, to file a Suspicious Activity Report whenever anyone makes a transfer of more than $10,000 to or from certain banks in certain countries. These institutions must provide information on these transfers but cannot tell any customer that he or she is under investigation.
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