Offshore asset protection (aka Foreign Asset Protection) for Estate Planning
Estate Planning for Businesses
Why offshore asset protection (aka Foreign Asset Protection) is a legitimate business necessity. Discusses 1040 income tax return in regards to offshore reporting and foreign asset protection.
The U.S. Taxpayer has been intimidated by the government, accountants, and lawyers into equating offshore or foreign business asset protection as fraudulent, unlawful illicit activities and as hiding their assets, fortunes and money illegally. The foreign countries take the opposite point of view that doing business with U.S. citizens is not worth their time and effort because it subjects them to too many restrictions and over reporting to too many agencies.
For example, the United States Congress since the year 2000 has added some 20,000 pages of new tax-law regulations and increased the number of 1040 forms (individual income tax return) reporting and compliance requirement from 475 to 582. Americans spend on average 26 hours and spend in excess of $140 billion in tax preparation and compliance, each year. The laws are so complex that 60% of Americans have to hire professional help.
Foreigners avoid doing business with US citizens because they don't want to be dragged into a myriad of compliance. Why are there so many lawyers like coffee shops around every corner?
Mention the word "Offshore" and I will lose 98% of the people. The perception of "offshore" is that it's a less than credible type planning. Have you noticed that no U.S.-based newspaper has any bank certificate deposit offers or information about bank certificate deposits? There is only mention of US-based investment opportunities. So how do non-U.S. citizens make their money? Is America the only country that has and created this impeccable knowledge of business and commerce?
More to the point, nothing about foreign commerce is being taught in our colleges - nothing truly worthwhile that is of pragmatic significance anyway. In a shrinking global economy and internet-based worldwide commerce, the lack of information on international commerce is bewildering.
Even of a certain well respected business college where I'm a graduate of and where the composition of foreign students to U.S. students are about 65% from outside the United States, the professors have the word "International" on their business cards; yet when quizzed about how to conduct business in a foreign country, their stock answer is that I should consult with my accountant or lawyer. To which I respond, so you've never conducted business outside the U.S.? Have you ever been outside the U.S.?
So the word "International" on your business card does not refer that you're an expert "professor" of international trade, but that you mean to refer to your business card is that you teach international students out of a textbook but without first-hand experience in international business. You guessed it. They walk away but this is true of any person who has been intimidated by the present business realm and in particular the offshore governing structures.
Offshore Asset Protection is Wicked
There seems to be a sentiment among the "international" professors that the word "offshore" is synonymous with wickedness probably propagated by the government or more due to their lack of knowledge of the complexities of offshore asset protection. It is not for the faint of heart.
Most people mistakenly believe that foreign tax planning is for the very rich. It is not only for the wealthy. As individuals become financially sound, 10% to 15% of their assets should be offshore. It's a legitimate business necessity. In the event of catastrophic events or major calamity, whether from personal origins or business related ones, you should be able to get your hands on some cash that is outside the United States. Is it not the principle that all your eggs should not be in one basket the primary goal of sound investments?
So what's offshore asset protection? What's involved in it? Is offshore asset protection appropriate for everyone? What's this intimidation factor all about?
1040 Income Tax Return Reporting in Offshore Asset Protection
The intimidation part the problem stems from the form 1040 income tax return schedule B, Line 7a where you must the check the box if at any time during the taxable year you had an interest or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account. If the answer is yes, you have to file an additional form "TD F 90-22-1". Answer "Yes". Check the box. It's not a crime to have a foreign bank account or hold foreign securities.
Additionally question 8 of form 1040 Schedule B, asks if you received a distribution from, or were the grantor of, or a transferor to, a foreign trust. Answer is "Yes". It's not a crime to have a Foreign Asset Protection Trust (FAPT).
Doing Business Offshore Will Not Trigger an Audit by the IRS
It's not a crime to do business internationally. The U.S. treasury (aka IRS) is more concerned if you do not report. Reporting business transactions is as with any US-based reporting whereby we, the taxpayers, report all income, interest, dividends and other sources of income from all sources on a worldwide basis.
Doing business internationally and checking the box on schedule B will not trigger an audit. The sole purpose of doing business internationally is to access business opportunities on a worldwide basis and bulletproof foreign asset protection or better known herein as offshore asset protection.
In the next few articles I will explore business opportunities for offshore asset protection strategies and describe Foreign Asset Protection Planning, Foreign Asset Protection Trusts, Foreign Limited Liability Companies, International Business Companies, Double Stacking Trusts, how to set-up a foreign bank account and how to make foreign investments - legally and completely compliant with the IRS.
Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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