New Rules Affecting Off-Shore Accounts

Under new rules affecting 2011 tax returns, taxpayers that hold assets in offshore accounts must disclose the assets to the IRS or risk penalties. This rule is intended to expose secret off-shore accounts held by U.S. taxpayers. Since 2009, the IRS has cracked down on illegal offshore accounts, and its efforts have lead to thirty-six convictions and four cases that are awaiting trial.

After the UBS scandal, Congress passed the Foreign Account Tax Compliance Act of 2010 (FACTA).  Phase one of FACTA takes effect in 2011 and for the 2012 filing season and requires taxpayers to file a new form disclosing offshore assets that exceed $50,000. The form is due with the taxpayer’s tax return, and penalties for failing to file are harsh (up to $10,000 for each 30 days not filed).

Even in light of the IRS and Congress’s efforts to seek out secret off-shore accounts, some financial advisors have discovered new and legal tax benefits of investments based offshore. These benefits could actually increase if Congress cuts tax deductions for the upper class and if the 2.8% income takes effect in 2013.

For more information on the benefits of and new laws affecting offshore accounts, see Laura Saunders,  What’s Next for Offshore Accounts?, The Wall Street Journal, Dec. 10, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.