Recently the IRS announced the IRS Offshore Voluntary Compliance Initiative. The IRS has had an increasing interest over the last four or five years in offshore activities, suspecting that United States citizens are avoiding taxes on income or gains by using offshore bank accounts. The focus has been on the countries of Antigua, Barbuda, the Bahamas and the Cayman Islands (the “ABC Islands”).
Recently the IRS has served summonses on MasterCard, Visa and American Express, seeking to obtain records with regard to any American citizen who owns a credit card issued by a bank in the ABC Islands and not doing business in the United States. The thrust is that the credit card is really a debit card, and provides easy access to withdrawing untaxed, offshore money and using or depositing it in the United States.
In conjunction with this investigation, the IRS has announced that those U.S. taxpayers who have used offshore credit cards or offshore financial arrangements to avoid income taxes may voluntarily come forward prior to April 15, 2003. The Initiative covers the calendar years 1999 through and including 2002. The IRS has indicated that it would not go after the “bad guys” for tax years ending prior to January 1, 1999. To be eligible for this Initiative, the taxpayer must submit extensive information concerning all reported and unreported income. A person who has derived income from illegal sources or has used foreign income for illegal activities is not eligible to participate.
There are valid wealth planning reasons for a United States resident to maintain an offshore account and maintain assets offshore. For example, some feel that while there are presently no currency restrictions applicable to U.S. citizens (other than the requirement to disclose cash in excess of $10,000 when traveling to and from a country), future currency restrictions are likely. Other persons are interested in protecting their wealth from claims of creditors, by maintaining assets in different jurisdictions. The key to safety is to comply carefully with all U.S. laws and regulations, disclose and report all income, both domestic and foreign, and file all appropriate income tax returns.
— Mike Beausang