2 ms·

What’s the tax compliant way?

vmception 6y ago
The key issues here were hiding the existence of accounts and organizations, not the existence of them. The British Virgin Islands company can exist and its earnings can grow tax free. The same for the Caymans one. The nature of what those organizations do determines what taxes a US citizen owner has to pay, in many cases it would still be substantially lower than “ordinary income”. The key issues would be aiming to avoid passive foreign investment company and controlled foreign company regulations. The second issue is neglecting the FBAR reporting. Which is another way of telling the US government about bank accounts and companies. Neglecting FBAR alone has criminal penalties. Merely telling them does not create a tax liability. But perhaps telling them would reveal other non-compliance or undermine other asset protection plans by the mere nature of someone knowing. Could trigger pursuits by creditors or prior relationships. Not everyone has these problems and as you see they are not necessarily tax problems. The third issue was using the funds domestically. They bought a house on US soil, strike one, and lived in it, strike two, and not paying taxes on the amount repatriated, strike three. They could have posted collateral with a third party lender and borrowed against it, to get liquid. Paper borrowing without a third party lender (ie. Just writing a contract on behalf of the offshore company you own, and saying you are borrowing) would not be compliant. Collateralized third party lending has stood the test of time. If your collateral gets liquidated you have to pay taxes then, so overcollateralize and pay your interest. A year in the US Virgin Islands or Peurto Rico could have been used to convert those taxable earnings into post-tax at 0-4% tax rate. They just didn't and stuck with non-compliant avenues. They are using non-profits onshore, they could have done a lot more with that to reduce their taxable earnings while retaining control of the funds for the most part. There are so many ways.

The key issues here were hiding the existence of accounts and organizations, not the existence of them. The British Virgin Islands company can exist and its earnings can grow tax free. The same for the Caymans one. The nature of what those organizations do determines what taxes a US citizen owner has to pay, in many cases it would still be substantially lower than “ordinary income”. The key issues would be aiming to avoid passive foreign investment company and controlled foreign company regulations. The second issue is neglecting the FBAR reporting. Which is another way of telling the US government about bank accounts and companies. Neglecting FBAR alone has criminal penalties. Merely telling them does not create a tax liability. But perhaps telling them would reveal other non-compliance or undermine other asset protection plans by the mere nature of someone knowing. Could trigger pursuits by creditors or prior relationships. Not everyone has these problems and as you see they are not necessarily tax problems. The third issue was using the funds domestically. They bought a house on US soil, strike one, and lived in it, strike two, and not paying taxes on the amount repatriated, strike three. They could have posted collateral with a third party lender and borrowed against it, to get liquid. Paper borrowing without a third party lender (ie. Just writing a contract on behalf of the offshore company you own, and saying you are borrowing) would not be compliant. Collateralized third party lending has stood the test of time. If your collateral gets liquidated you have to pay taxes then, so overcollateralize and pay your interest. A year in the US Virgin Islands or Peurto Rico could have been used to convert those taxable earnings into post-tax at 0-4% tax rate. They just didn't and stuck with non-compliant avenues. They are using non-profits onshore, they could have done a lot more with that to reduce their taxable earnings while retaining control of the funds for the most part. There are so many ways.