Blog
Archive for December, 2008
A New Barrier to Offshore Asset Protection
December 16th, 2008
By The XBanker
You most certainly have seen the ads and heard the promoters touting the incredible benefits of offshore asset protection: Privacy, anonymity – and the big one – no taxes ever.
But there is a wrinkle in all their chatter. Uncle Sam taxes U. S. citizens on their worldwide income. So in another one of those too good to be true scenarios, setting up offshore won’t get you off the hook for federal income and capital gains taxes.
Of course, this is not enough of a deterrence for some. They will listen to the promoter and not to their U.S. advisors, who the promoters successfully argue don’t “understand” the benefits of offshore strategies. The promoter will tell them once you are set up offshore there are no filing requirements ever again for U.S. taxation purposes.
This is not the case. And the failure to file the proper form has just gotten very expensive.
The form in question is I.R.S Form 5471. All U.S. citizens who have equity in, or a controlling interest in a Controlled Foreign Corporation (”CFC”) must file one. Most offshore asset protection promoters put their U.S. clients into entities that are considered CFCs.
As of January 1, 2009, the IRS will now assess an automatic penalty of $10,000 for each CFC filing that is missed. That is $10,000 for each entity in each year that is not filed.
So let’s review an example of what can and now does happen in the offshore world.
Joe listens to an offshore promoter in Nevis about the benefits of offshore asset protection. The promoter never mentions the need to file Form 5471 each year. Joe spends tens of thousands of dollars to set up five CFCs in 2009.
In 2012, the Nevis promoter’s mistress realized the promoter won’t leave his wife. She is spiteful and turns all of the promoter’s files in to the IRS. Very quickly, the IRS is calling on Joe demanding $200,000 in penalties for the five entities for which no Form 5471 was filed for four years. And that’s just the start. Joe will have penalties, interest and taxes due on all the income he made over those years.
If you think it is unlikely the IRS could ever receive information in such a way, think again. If it is not from the promoter’s mistress, it may be from your own spouse or mistress or other aggrieved party. The IRS counts on domestic troubles as one of its best sources of information. But even if your life is trouble-free you can count on the authorities to be monitoring your wiring instructions and banking activities for offshore violations. And with this new $10,000 automatic penalty they have ever more incentive to do so.
You can complain about Big Brother and Big Government if you want (and you should; it’s healthy and to be encouraged). But it is important to know that certain offshore promoters will never tell you about these crucial requirements, to your great financial detriment.
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Foreclosure Scams
December 1st, 2008
By The XBanker
The increase in foreclosures has resulted, predictably, in a surge in the number of scamsters pretending to want to help homeowners in need. Here are some of the scams to be aware of:
- The Bailout: The homeowner is led to believe that by signing over title to the house he or she can remain as a renter and buy the house back over time. The terms of the buyback are impossible to meet and the homeowner loses possession. The scam artist ends up with the property.
- Equity Skimming: A “buyer” approaches you with an offer of help. He will pay off your mortgage but you must move out and deed the property to him. The buyer puts a tenant in the property and collects the rents. But he does not make any mortgage payments and allows the lender to foreclose.
- The Bait and Switch: Homeowners are led to believe that they are signing documents to bring the mortgage current. Instead, they are actually turning over their ownership of the property to the scam artist.
- High Powered Help: Companies promoted as heroes to homeowners charge large and excessive fees to save the property. They perform very little work and the home is lost anyway.
How do you avoid one of these scams?
First, never be pressured to sign a contract. Take your time. If it is such a good service they will offer it tomorrow, despite their pressure to sign today. Suggest that you must have your lawyer review it (even if you don’t have a lawyer). If the person says a lawyer wouldn’t understand this or wouldn’t approve of it – you know you are dealing with a scam artist.
Second, never sign away your ownership to the property. People who put you in this position are only maneuvering to take away your home.
Third, never make a mortgage payment to anyone but the lender. If the scam artist suggests that they will pay the mortgage be assured that they will not.
Fourth, do not sign any document with blanks or lines that are not filled in. Scamsters will later add language to your detriment.
Finally, always seek the counsel of a good, local lawyer. Their job is to protect you from ever being scammed in these ways. And in this current environment there are plenty of scams to know about and avoid.
