How to Attract Attention From the IRS con't...

On the seedy side, offshore tax shelters offer a good way to get ripped off.  If you decide to try them, beware. There are probably areas of finance with more scams, schemes and dubious claims, but offshore tax shelters would be close to the top.

Some of these rip-offs are pretty obvious. A promoter will take your money, promising to hide it from the IRS, and then disappears with it or worse, he blackmails you for more money by threatening to turn you in to the very tax agency you were trying to hide from. Is there an up-side to this? Not a chance!

The question isn't whether you can legally hide income from the IRS in an offshore trust, the question is whether you can get away with it.  The answer is, probably not.

Here are a few things to think about:

That friendly country that provides secrecy now may change its position in the future. Many former tax havens, including the Cayman Islands and Bermuda, have seen the error of their ways due to pressure from the United States and the European Union and now share your information with the US tax authorities. The problem is bigger than you. The United States and the European Union aren't just looking for tax evaders, they are also looking for drug dealers, money launderers and terrorists who have found the loophole in the bank secrecy laws and are using it to their advantage. It wasn’t you that the former tax havens wanted to single out, but decided that protecting cheaters wasn't worth incurring the wrath of powerful nations, like the United States.

Once a tax dodge haven becomes popular, the IRS WILL find a way to crack it. The IRS has subpoenaed millions of transaction records from major credit card companies in the past to find U.S. citizens who were using plastic to tap offshore bank accounts where they have hidden unreported money. The IRS takes great pleasure in doing audits on these citizens and have promised there will be more.

Don't expect support or loyalty from the company that's helping you break US laws. The IRS is very active in getting client lists from investment banks, law firms, accountants and promoters who sold tax shelter schemes, both domestic and foreign.

A word to the wise, is to be careful about taking advice. Many high-profile promoters of offshore accounts and trusts are under IRS scrutiny. Many of the promoters are now doing jail time.

There are countries like Panama and Belize, where bank secrecy laws could help you hide assets from the U.S. government. Of course, there are plenty of snake oil promoters that will tell you that this time, they've found a foolproof way to avoid paying income tax. Just remember that you cannot expect the law or the courts to help you when you loose everything when you’re taken to the cleaners.

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