Personal Finance > Taxes
Tax haven or hell?
February 24, 2000: 2:14 p.m. ET

Offshore tax haven 'specialists' can leave taxpayers adrift in rough seas
By Staff Writer Rob Lenihan
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NEW YORK (CNNfn) - So there you are cruising the Caribbean on your mile-long yacht, counting your tax free millions, as you sip pina coladas and blow raspberries at the Internal Revenue Service.
    If the above scenario sounds like a dream, legal experts say it probably is. While in-flight magazine ads and Web sites tout the wonders of offshore tax havens in the Bahamas, Cayman Islands and other exotic locales, a harsh dose of reality can kick the peg leg right out from underneath your Treasure Island fantasies.
    Experts say if you follow misleading advice on offshore accounts you may find yourself walking the tax plank, and a claim of ignorance will not save you from a watery legal grave.
    "Be very leery about whom you're dealing with," said Howard Fisher, an international tax attorney with the Beverly Hills, Calif.-based Clinco & Fisher LLP. "There are unscrupulous people out there who are out there to gain your money and there are a large number of people out there who are truly ignorant."
Shoving off

    The first thing you have to do when considering an offshore investment is simple: Get real. The rules surrounding offshore taxes can be quite complicated and the IRS recently created an entire division to go after abusive trusts.
    "Let the buyer beware," said IRS spokesman Don Roberts. "U.S. citizens who have income anywhere are required to report that and it's taxable."
    Now you'd expect the government to say that because they want your money. But would you listen to Gerald Kelly, an attorney with the Bethesda, Md.-based law firm Frank & Associates, which specializes in fighting the IRS?
    graphic"You can't run your money through a bank in the Caribbean somewhere and have it be tax free," Kelly said. "If you're a wage earner or an independent contractor providing services in the U.S., you can't just run it through a trust and escape taxes on it. We've had clients who bought into these things and were prosecuted."
    Fisher said the United States has tremendous power to force overseas banks to give up all kinds of documents.
    "There are very few easy ways for an American to go to a tax haven," Fisher said. "If you could, why would wealthy people keep their money here? Unless it's a traditional U.S. vehicle, like an insurance arrangement or private annuity, you just cannot park your money offshore and not pay taxes."
Man overboard!

    Think you can bury your money on some island like Long John Silver and beat the taxes? Consider the case of Denyse and Michael Anderson, whom the Federal Trade Commission accused of running a Ponzi scheme. The couple, which kept earnings in a Cook Islands trust, claimed they were unable to repatriate the assets from that trust because they had relinquished control over the money to unaccountable overseers.
    A federal district judge disagreed, and ordered the couple held in court until they came up with the money. The Ninth Circuit Court, which Kelly said has been known for backing taxpayers, upheld the district court decision.
    "There are Web sites where the advisors are off-shore and not subject to U.S. jurisdiction," Fisher said, "and they're giving out flat-out wrong advice. People are constantly getting involved in schemes which simply have no basis in fact."
    graphicAnd it's not just individuals who have offshore woes. United Parcel Service (UPS: Research, Estimates) had some major trouble in paradise last year when the United States Tax Court decided the world's largest package-delivery service was liable for income tax owed by Overseas Partners Ltd. a Bermuda-based company that handled insurance on its packages for all years through 1999.
    Company spokesman Norman Black said UPS has not decided yet what its next move will be, but if the ruling stands, the company's total exposure will be about $1.8 billion. Meanwhile, the Atlanta-based company has put $1.4 billion into an escrow account that protects Big Brown's right to appeal and stops the accumulation of interest.
Dropping anchor

    What do you get from an offshore tax company? OPC International, which bills itself as an "international online organization," offers packages for the would-be offshore investor.
    The company's Web site offers the Global CyberBusiness Package for $2,499 that is said to include an offshore corporation, an offshore bank account, an offshore debit card, an offshore credit card merchant account and an offshore mail drop address. OPC officials declined an e-mail request for an interview. graphic
    What should you do if you're interested in offshore tax havens? Experts recommend that you talk to...experts.
    "There are legitimate ways to protect your assets," Kelly said, "but it's a bit more complex that what you see advertised in newspapers or in-flight magazines. My advice is to get a second opinion."
    Fisher advises looking for someone with experience. He suggests contacting trade associations to see if the person in question is known and respected by his or her peers. Professional organizations include the National Assn. of Tax Practitioners, the National Assn. of Enrolled Agents and the Financial Planning Assn.
    Fisher also suggested contacting the big accounting firms. If the person has a reputation, one of these firms should recognize the name.
    "You want somebody with credentials," he said. "You want something that indicates experience. Are they a recognized member of the community?"
    And keep an eye out for scams. The Tax Prophet and are two Web sites that tracks various types of con games. Back to top


UPS delivers tax charge - Aug. 16, 1999

Beware the 'Net tax bandits - March 23, 1999


Internal Revenue Service

Frank & Associates

Clinco & Fisher

Financial Planning Assn.

National Assn. of Tax Practitioners

National Assn. of Enrolled Agents

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