The IRS continues to aggressively pursue offshore tax evasion. Another example of which is plan to share tax information with Australia and the United Kingdom. The announcement says that the target is trusts and companies holding assets on behalf of residents throughout the world.
Popular countries used to create of trusts and other entities according to the IRS are:
- British Virgin Islands
- Cayman Islands
- Cook Islands
But there is nothing wrong or illegal about holding assets in offshore entities – as long as it is properly reported. The IRS has a multitude of reporting requirements for offshore activity (FBARs, Form 8938, etc.).
It is absolutely vital to get a knowledgeable tax professional to help make sure you are complying with the laws. The rules are far from intuitive. For instance, FBARs require the reporting of Foreign Bank and Financial Accounts. Do you think a foreign life insurance policy fall into this definition – answer is YES.
Failure to report these accounts can be financially devastating and can lead to criminal prosecution. There are ways to mitigate the damage – if you act quickly.