One of the results of the intensifying IRS anti-offshore vendetta is that offshore banks increasingly restrict or even prohibit investments by U.S. clients.
Switzerland's largest bank—UBS—has announced that it will close all the offshore accounts of its U.S. clients—about 19,000 accounts in all. U.S. clients have the option of transferring their assets to U.S.-based wealth-management units, or to another offshore bank. They can also repatriate the assets to the United States. All these options create a paper trail that many clients—especially those who didn’t report the income or gain from their accounts to the IRS—would prefer to avoid.
It's no surprise that UBS wants to divest itself of its U.S. clients. Based on information from a former UBS employee turned IRS informant, U.S. prosecutors have demanded that UBS release the banking records of its 19,000 U.S. depositors. Armed with this information, prosecutors would have an open-and-shut case against any U.S. person who failed to report income or gain from their UBS account.
The Swiss government so far has refused to allow UBS to turn over these records, citing the country's bank secrecy laws. However, negotiations are underway that may permit banking records to be released on a case-by-case basis. If you're a U.S. person with an unreported offshore account at UBS—or anywhere else—contact a tax lawyer immediately for assistance. The IRS has you in their cross hairs.
The humbling of UBS by U.S. prosecutors is a shot across the bow for other offshore banks doing business with U.S. clients. Many offshore banks—not just UBS—have already severed account relationships with U.S. residents. Can you really blame them?
U.S. persons—U.S. residents especially, but increasingly, even U.S. citizens living abroad, are persona non gratae at offshore banks. Moreover, as the Obama administration beefs up the Securities & Exchange Commission, you can expect renewed efforts by this agency to penalize offshore banks that permit U.S. investors to purchase foreign securities that aren't SEC-registered. I know of at least one offshore bank that already prohibits U.S. residents from purchasing non-SEC registered securities. I think this number will increase in the months and years ahead.
Here are a few ideas that you may help you bypass these restrictions:
- Have the bank or a private portfolio manager trade your portfolio. That way, you're not providing investment instructions from the United States.
- Place your assets in a tax-compliant offshore structure, such as an offshore trust, an offshore corporation, an offshore LLC, an offshore insurance policy, or an offshore annuity. Again, you may again lose the ability to make investment decisions.
- If you want to manage your own account, some offshore banks will accept investment instructions from U.S. persons if they originate outside the United States.
Whatever you do, don't give up! As the global economy collapses, it's more important than ever to get a portion of your wealth out of the United States—away from litigious lawyers, nosy competitors, and most of all, out of the U.S. dollar.
Copyright © 2009 by Mark Nestmann
