We frequent write about offshore tax havens its usually about Switzerland, the Caymans, Liechtenstein and Singapore. The ultimate tax haven may be the good ol’ U.S. of A. and Uncle Sam is seeking to fix that.
Many U.S. banks have been critical of the new Foreign Account Tax Compliance Act – FATCA for short. Not because it creates paperwork hassles for American financial institutions but because more and more countries are demanding reciprocity. American banks know that many foreigners hide their money here. As the financial world moves towards greater transparency, Congress has jumped into the fray – this time with legislation aimed at American shell companies.
FATCA mandates that foreign financial institutions such as banks, brokerage firms and even some insurance companies begin reviewing their accounts and reporting accounts with ties to the United States. Treasury officials think there is billions of dollars being hidden in offshore banks. They are correct, although most Americans open foreign accounts for completely legitimate reasons. (Having an unreported foreign account can be a felony and always carries the risk of huge civil penalties.)
Many times, taxpayers seeking to hide money from the government create nominee entities (foreign LLCs, trust and IBCs) in so called tax haven jurisdictions. With or without FATCA, many foreign countries are now requiring greater corporate disclosure to avoid money laundering and terrorism financing problems associated with nominee accounts. Two months ago we wrote that Captive Review magazine claims the United States and Great Britain are two of the easiest countries to establish a “puppet” or nominee entity.
A nominee entity is one set up in the name of a real or fictitious third party. The IRS says that using a nominee without a valid business purpose can be an “affirmative act of tax evasion.”
Since we last wrote, a bipartisan group of Congressmen have introduced legislation to prohibit the 50 states from allowing corporations or LLCs to be formed by undisclosed parties. Instead, states would have identify the people behind companies formed in their state. The bill was introduced by 4 very powerful Congressional leaders, Senators Carl Levin (D. Michigan), Dianne Feinstein (D. California), Tom Harkin (D. Iowa) and Chuck Grassley (R. Iowa).
In introducing the legislation, called the Incorporation Transparency and Law Enforcement Assistance Act, Senator Levin said “Today, it takes more information to obtain a driver’s license or open a U.S. bank account than it does to form a U.S. corporation. [T]he United States is currently one of the world’s biggest offenders in terms of creating corporations with hidden owners.”
In other words, we have become secrecy jurisdiction and that means tax haven.
A press release announcing the bill lists many big name endorsers and supporters but conspicuously absent are the banking trade groups. Why? Because they know that such a bill might cause billions of offshore money to leave the U.S.
While we understand the concerns of bankers, the world becomes smaller every day. It’s simply becoming impossible to hide money from the IRS or other foreign tax authorities. The days of bearer corporations, secret numbered accounts and tax havens are numbered. While some countries will always offer certain tax advantages over others, secretly moving money from one country to another is becoming more difficult.
Some readers may think that creating a shell corporation and nominee account is a great way of hiding money from the IRS. It isn’t. Doing so can result in prison.
If you questions about FATCA or have an unreported foreign account, give us a call. We will gladly help you explore your options. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting problems including FATCA and unfiled FBARs.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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Post by Brian Mahany, Esq.