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The IRS And You

By John Dietz - Email Editor

Date: May 23, 2006

Last week Rob wrote about privacy, or shall I say, the lack of it. This week I want to focus on the ever-growing concerns I have with regards to tax avoidance schemes. I am not sure when it happened, but somewhere along the way while rearing children, adults forgot to mention that it is much more fun to learn the game and play by the rules than to cheat.

There must have been a seminar somewhere recently telling U.S. citizens if they put their assets offshore they do not have to pay tax anymore. The amount of calls and e-mails I have received on this topic is unfathomable. In 2003 the IRS smartly put together an amnesty program for all with unreported offshore income to come forward and avoid criminal prosecution.

This netted the government about $170 million in taxes and penalties. Much like how the IRS has gone after offshore credit card scams, it is now going after people that they believe may be using PayPal to avoid tax. PayPal’s system enables individuals and businesses around the globe to send and receive money online. In 2005, users moved $27.5 billion through the PayPal system. The company, owned by eBay, now has 100 million account holders worldwide.

The IRS on April 16th 2006 requested all PayPal transactions from 1999 to 2004. Although I believe PayPal values the privacy of its customer base, in the end, we can only assume that the IRS will get their requested information.

If this sounds bleak, it shouldn’t, unless you have something to hide. If you do have something to hide, please consult a qualified criminal tax attorney. Think of it this way: We all are in the same system, and all play by the same rules, yet somehow millionaires are made everyday in this imperfect tax place we live in. I’m not crazy about the U.S. tax system, but I have traveled the world many times and I can say with the utmost certainty that the U.S. system is not the worst; in fact, it’s up there with some of the best. This is not flag waving; it’s just the truth.

So where does this all lead. The only real way of saving tax is proper tax planning. Asset Protection can be combined with certain types of legitimate domestic and offshore tax planning, which when properly implemented by a real expert, can result in significant tax saving. If you’ve been reading our newsletters, chances are you have found some real down to earth legal and ethical strategies that will help to reduce your tax burden. Remember, the IRS says that you are obligated to pay the correct amount of tax under the law; no more, no less.

Offshore Asset Protection alone almost never saves taxes, in fact, it’s generally tax neutral. Offshore tax planning can sometimes save lots of money if you are doing business internationally. Asset Protection Plans should work with any solid legitimate offshore tax planning.

There are many great reasons for going offshore, and for most clients, none are for tax savings alone. Here are the top three:

1. Offshore provides privacy.
2. Offshore provides Asset Protection.
3. Offshore enables global investment choices.

Link to IRS recent actions, IRS Civil and Criminal Actions 2006.

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