Offshore asset protection schemes remain popular – in spite of the complications and costs that they add to basic structures that are more easily documented under US law. A new case in point: FATCA.If you have an offshore scheme in place, or if you’re considering setting one up, you need to know about this.Rules affecting foreign accounts held by US taxpayers have been on the books for many years; they were not generally enforced. But in 2009, U.S. officials were shocked – shocked! – to learn that foreign banks, especially in Switzerland, were encouraging U.S. tax evasion. In response, Congress passed the Foreign Account Tax Compliance Act, or FATCA, in 2010, effective July 1, 2015.
FATCA requires foreign financial institutions to turn over information about US account holders so that the IRS can track taxpayer compliance.
FATCA also imposes new reporting requirements on US holders of offshore accounts, which can be extremely burdensome and invasive.
More than 165,000 foreign firms have signed up to comply, because if they don’t, they risk severe consequences that would adversely affect all their account holders. This is the first year they are turning over information, so some U.S. taxpayers with undeclared foreign accounts now could be “outed”—even if they weren’t intentionally disobeying the law or even aware of it.
However, another effect of FATCA is to make foreign banks and other firms much more reluctant to open accounts for US taxpayers. If you are setting up an offshore asset protection scheme now, you may have a much harder time then you would have had last year. Services and professionals that promise to make bank introductions for you will often prove unable to perform.One rational response to this situation is to reconsider going offshore. In most cases, you can protect your assets adequately by using trust score companies formed under the laws of a selected US state. It’s cheaper and quicker than going offshore – and it’s likely to be viewed more favorably by US courts.