With the new year, the current economy and ever-changing investment strategies, is it time to consider an offshore tax haven? Let’s take a look.
There are a number of reasons to consider offshore placement of assets. While a primary focus of wealth management is asset growth, asset protection is important as well, especially during periods of geopolitical or national instability. For a deeper look at offshore banking considerations, our guide, "Offshore Tax Matters Explained," provides additional perspective.
Beyond growing wealth through preferential tax arrangements, an offshore bank account may offer benefits, including:
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Diverse investment: Maintaining assets in different structures, locations and forms can reduce exposure to disruption in any single market or jurisdiction.
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Privacy and protection: Offshore accounts may offer enhanced privacy and, in some circumstances, asset protection.
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Mitigation of uncertainty: Political or economic instability in one region may be offset through strategic selection of a stable offshore arrangement.
Moving money offshore provides access to different services and investment options. It also requires careful attention to regulatory and reporting requirements.
Foreign bank account reporting
Offshore tax evasion remains a significant concern of the Internal Revenue Service (IRS). Some abusive offshore tax schemes are complex, while others involve outright tax fraud or money laundering. The Bank Secrecy Act of 1970 introduced reporting requirements that have tightened over time. Individuals should understand the following reporting obligations:
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Foreign Bank and Financial Report (FBAR): The FBAR is due annually on April 15 and is filed with the Financial Crimes Enforcement Network (FinCen). FinCen. An automatic extension is available until Oct. 15. You must file the report if the aggregate value of your foreign accounts exceeds $10,000 at any time during the calendar year.
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Foreign Account Tax Compliance Act (FATCA): FATCA reporting is generally required of foreign financial institutions that hold or manage U.S. account holders’ assets. For expatriates, commonly referred to as expats, these requirements may create challenges when opening accounts abroad because of the additional compliance burden placed on financial institutions.
The FBAR requires reporting by U.S. persons who meet the filing threshold, while FATCA imposes reporting obligations of foreign financial institutions. Discrepancies between these reports can raise questions and potentially trigger an IRS audit.
Accurate recordkeeping is essential when maintaining an offshore bank account. Civil and criminal penalties for noncompliance can be significant. Whether you currently hold offshore interests or are considering an investment, ensuring your reporting structure is compliant from the outset can help reduce the risk of future IRS inquiry scrutiny.
Experienced guidance on offshore reporting and compliance
Offshore reporting can be complex, and failure to file an FBAR can result in substantial financial consequences. If you are concerned about annual reporting obligations, the tax attorneys at Robert J. Fedor, Esq., L.L.C. can provide guidance on offshore compliance matters. Contact us Contact 440-250-9709 or request a consultation. We serve clients in Northeast Ohio, Chicago, New York and internationally.
