The Pros and Cons of Moving Money Offshore
Offshore banking – setting up a bank account in a foreign country – can often be a good idea, especially in countries that have favorable banking regulations. Offshore banking can also present risks. In addition, there are IRS reporting requirements that, if not attended to, can cause a taxpayer civil and even criminal liability.
Before opening up a bank account in another country, it is a good idea to weigh the pros and cons and then run any questions you have by a Washington, DC tax attorney.
Opening an Offshore Bank Account: the Pros
There are many good reasons to open a bank account offshore, including the potential to earn high interest rates and the promise of anonymity.
People looking for a place to park substantial amounts of money often look at offshore accounts simply because of the earnings they can realize from interest on their deposits. It’s not hard to find foreign banks offering higher interest rates than U.S. banks.
If you don’t want anyone knowing where your money is parked, an offshore bank account is just the ticket. Many of the most popular offshore banks operate in countries where disclosure of any account-holder information is prohibited by law, and those laws are strictly enforced.
Keeping an Offshore Bank Account: the Cons
United States bank customers are used to their deposits being insured by the FDIC. If the bank falls into hard times, you have the comfort of knowing that your funds are safe. In a worst case scenario where the bank fails, your money will be replenished by the federal government. This is not the case when you deposit funds offshore. If an offshore bank closes, you will likely lose what you deposited and any interest you earned on your funds.
If the country where your offshore bank is located undergoes a natural disaster or political upheaval, your deposit could be at risk. And depending on where you are banking and whether you are managing your funds through electronic means, systems could be compromised, resulting in funds disappearing.
There is also a cost to parking funds offshore. You will have currency conversion fees to contend with, and these will be on top of any costs incurred in setting up the account in the first place. It’s important to do a serious cost-benefit analysis because depending on how long your money stays abroad, you could actually end up spending more to open and keep the offshore account than you earn in interest.
Complying With U.S. Offshore Banking Laws
Under the Internal Revenue Service’s Foreign Bank and Financial Accounts Program (FBAR), “each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other type of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year” must disclose the existence of such accounts, and report any income derived from them to the Internal Revenue Service.
Taxpayers who fail to file the proper FBAR forms and report their offshore accounts can face serious civil and criminal penalties, including fines, probation and prison sentences.
Contact a Washington, DC Tax Attorney Regarding Current or Future Offshore Accounts
The IRS has made cracking down on offshore tax evasion a top enforcement priority. Managing attorney Kevin Thorn at Thorn Law Group understands the rapidly developing laws and regulations governing overseas bank accounts, and we have extensive knowledge of the procedures and methods used by the U.S government to monitor and investigate offshore accounts.
Contact us online or call 202-349-4033 for an appointment to discuss identifying and resolving potential legal issue in order to bring your offshore bank accounts into compliance with government regulations.