by Brian Mahany
It didn’t take very long. Like vultures circling a dying carcass, shortly after the meltdown of Cyprus’ financial industry, competing tax havens have began soliciting investors. With the implementation of FATCA just months away, there are some important lessons in this story.
Cyprus was long a tax haven. Many Russians opened accounts on the small Mediterranean island hoping to avoid paying taxes at home. Lured by the promise of fiscal stability, bank secrecy and no taxes, it was the perfect place to invest or hide money. Or so people thought. When the economy suddenly collapsed last month, depositors learned that they would probably lose over 50% of their wealth.
While few Americans were affected, tens of thousands of U.S. taxpayers hide money in other so-called tax havens. Beginning in 2014, the chances of getting caught increase dramatically.
Cyprus’ banking sector is finished. Now the vultures have stepped in seeking whatever is left. Although depositors are limited in what they can’t take out, CNBC reports that some countries are circling nonetheless. They report the Swiss company Gonthier Group contacted some Cypriots that work with foreign investors suggesting they offer their clients an alternative investment vehicle; a “vehicle which is extremely low-profile, not classified as a bank account or trust and thus very much under the radar of national fiscal authorities.” (In that same report, a spokesperson for the Gonthier group denied they were soliciting investors to evade taxes.)
Moving money from one tax haven to another is a recipe for potential criminal prosecution and huge civil penalties. Beginning in 2014, foreign banks will be required to examine accounts for indicia of U.S. ownership or nexus. FATCA, short for the Foreign Account Tax Compliance Act, requires banks to report accounts that have ties to the United States. FATCA isn’t limited to just banks but also includes other financial institutions. (Brokerage firms, hedge funds and even some insurance companies are included.)
No one likes paying taxes but trying to game the system just isn’t worth the risk. Under the new FATCA regulations, banks will be required to do a look back making it too late to now move money.
(We chuckled when we read that a Swiss company was offering a “low profile” investment vehicle “under the radar.” We don’t buy it.)
Americans, dual nationals working here and resident aliens (green card holders) all must report their foreign accounts. The penalties for not reporting include civil penalties as high as $100,000 or 50% of the account value per year and criminal prosecution if the failure to report was “willful.”
The government considers moving money from one tax haven to another as an act of evasion and evidence of willfulness. While the vultures may be circling and tempting you with a new country that is not FATCA compliant or an investment vehicle that is under the radar, don’t fall to the temptation.
If you have an unreported account, there are options. The IRS is presently running an amnesty program called the Offshore Voluntary Disclosure Program (“OVDI” or “OVDP” for short). For certain ex pats living overseas, people with account values under $75,000 and those who can prove their failure to report was accidental, other better alternatives may be available.
Whatever you do, don’t wait. Once the IRS obtains your name through a foreign FATCA disclosure or otherwise, all bets are off. The IRS is operating their OVDI amnesty program on a first contact basis meaning you have to get to them before they identify you in order to qualify.
information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
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