Does Lack of Action on Tax Reform Give Wealthy Time To Move Funds Off Shore or to Burial in Back Yard with the Silver!

Posted on October 23, 2011

For as long as memory serves, wealthy American individuals and Corporations have been stashing funds off shore to avoid taxes.  At the very least, within the US, many wealthy establish residency in income tax free states.  But there is always the age-old practice of burying your stash in the back yard along with the family silver.  But hold.  The times they are a changin’:

October 1, 2011

The 75% Fraud Penalty (Plus Possible Prison Time)

If you get audited, and the IRS decides your tax return fraudulently understates your tax bill, you are in really big trouble. You will be hit with a penalty equal to 75% of the understatement. Plus you will be charged interest. And you could face criminal charges and possible prison time. In the next few years audits of expatriates and form 2555 (foreign earned income exclusion) will increase substantially due to recent discoveries about how many such forms were incorrect and were being filed by expats not eligible for the exclusion.
Committing tax fraud takes some work, because it goes beyond simple ignorance of the tax rules and regulations. You have to intentionally do really bad things like keep two sets of books, alter or destroy documents, hide unreported income overseas, or fail to report income from illegal activities (this is not a complete list by any stretch). Bottom line: You can’t commit tax fraud without knowing it.
Anyone accused of tax fraud should hire an attorney who specializes in big-time IRS problems. A CPA or Enrolled Agent can’t provide the equivalent of the attorney-client privilege, and those accused of tax fraud will need that privilege. Also, non-attorneys are not competent to deal with the criminal charges that will often go along for the ride with tax fraud cases. [US]
For a long time now, taxpayers have been required to report off-shore investments and income from them.  And guess what – it may cover the assets you have buried in the back yard in, say, Spain!

IRS Releases Draft of Instructions to Form 8938- 2011 Required Tax Form to Report Foreign Financial Assets

The IRS has released draft instructions to Form 8938. Form 8938 must be filed with your 2011 income tax return to report  Foreign Financial Assets if the total value of those assets exceed a reporting thresholds. Read the draft instructions here.    What ever happened to the IRS Paperwork Reduction Act which to our knowledge was never repealed. See the current IRS draft of Form 8938.

It is interesting to note you do not have to report your ownership of foreign real estate unless it is held in a foreign trust, corporation, etc.   At this point in time, it also appears you do not have to report any gold or other assets buried in your back yard (abroad) or held in your personal safe in your offshore villa.  Phew – a pass on this!  And the assets in you yard in the US are probably safe from IRS officials without search warrants and shovels. [US]

These drafts are still subject to revision before the end of 2011.

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