Lawyers And Ethics

[falong]

had a conversation with a "lawyer" friend of mine the other day. I pointed out that as an American there was not a lot of advantage to maintaining one of these tax free offshore accounts. I stated that the account must be reported to the IRS. His response was something like "yeah but you did not have to report it as they will never find out". We went back and forth on this for several minutes but he insisted that in fact it was stupid to report such an account.

This guy wont be getting any of my business. how could I trust someone who says that?

Am I overreacting or what?

[Dickie]

The best lawyers are bent or, at least, really understand the world in which we live. He's probably right in what he says, meaning he's giving you good advice.

[mbkudu]

Have you noticed that there is not one single reply to a post made by Thaiquila

'Real Estate And Taxes For Us Nationals.' This tells you something, doesn't it?

[paulfr]

"Old lady lost in the city

Middle of a cold cold night

Fourteen below and

The wind started to howl

There wasn't a boy scout in sight"

Randy Newman

---------

Sorry, couldn't resist.

If you believe that you should tell the truth

all the time, every time, and never ever, commit a

sin of comission or sin of omission, then

maybe he is not the lawyer for you.

Then again, maybe he is EXACTLY the lawyer for you.

[phormio]

I pointed out that as an American there was not a lot of advantage to maintaining one of these tax free offshore accounts.  I stated that the account must be reported to the IRS.

... 

Am I overreacting or what?

If you're really interested and have the time and inclination you might want to check out this in depth look at this issue:

Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else

by David Cay Johnston

The tax system in the US has been bent by special interest (ie big money) influence on the political system. In Johnston's book he mentions numbers like 1 to 2 million offshore (ie investment returns not reported as income to uncle sam or any other govt) accounts with individuals making frequent (untraceable )withdrawals from ATMs in the states.

The risk with these accounts is that they will run off with your money and you will not be able to get your money back.

[aqua4]

I dont understand. You asked him about the advantages of tax havens and he gave you an answer. It is his ethical obligation to put his client first.

There is nothing illegal about it unless you want to use it for illegal means. If you want to report it - do so, however this creates another problem of paper shoveling that somewhat makes away with the reason of having an offshore account in the first place, does it not?

[falong]

I dont understand. You asked him about the advantages of tax havens and he gave you an answer. It is his ethical obligation to put his client first.

There is nothing illegal about it unless you want to use it for illegal means. If you want to report it - do so, however this creates another problem of paper shoveling that somewhat makes away with the reason of having an offshore account in the first place, does it not?

The fact is that by law Americans must report offshore accounts. Not reporting is illegal. So lawyers can and should advise their clients to break the law?

[mbkudu]

If it is not reported, then technically in the governments eyes it does not exist, yes, no? If it does not exist, then it is not illegal, yes, no? There are a few reasons why there are stinking rich people in this world. One of the reasons is that the rich pay little tax compared to the amounts they actually earn. How many politicians and government employees do you think there are who have undeclared offshore accounts?

[paulfr]

Falong

You are absoutely correct. It is a requirement of IRS regulations

that you report. And there is a fine of some $500,000 I was once

told by a wealthy friend.

But the issue is much deeper than simply that jaywalking is

illegal and you should not break the law.

First, if the legislature did not make this reporting rule, it

is not a law. It is a regulation made by a department

of the govt. And bureaucrats are notorious for overstepping

their bounds in a desire for control and power. A few years

ago, the IRS was reposessing cars from people with no

income because of a ruthless culture that developed in the

agency among top managers. It took Congress, after alot

of bad publicity from 60 Minutes and the press in general

to reel them in.

But think about it for a minute. It is an outrageous violation

of individual freedom for any agency to require you to disclose

your entire financial statement without a good reason.

(Say for instance that you had not paid your taxes for several years)

Frankly, I am surprised some First Ammendment protection

group has not prevailed in reversing this regulation yet.

Governmnts all troughout history have trampled on individuals

for their own ends. This is just one tiny example. I could tell

you about many more another time.

What makes the USA unique and great is the Constitution,

the Federal separation of powers, and the Bill of Rights.

Your lawyer is your ONLY defense protecting you from the

enormous power of the Government. His job is not ONLY to

tell you what the law is (which he did), but how to play the

adversarial battle with the potential prosecutor. And this

battle comes down to a contest for information.

If he told you to lie while testifying in court, I would be

concerned. But to ignor a regulation which is almost never

followed and for which a conviction is very rare, may be

good advice.

JMHO

[falong]

Falong

You are absoutely correct. It is a requirement of IRS regulations

that you report. And there is a fine of some $500,000 I was once

told by a wealthy friend.

But the issue is much deeper than simply that jaywalking is

illegal and you should not break the law.

First, if the legislature did not make this reporting rule, it

is not a law. It is a regulation made by a department

of the govt. And bureaucrats are notorious for overstepping

their bounds in a desire for control and power. A few years

ago, the IRS was reposessing cars from people with no

income because of a ruthless culture that developed in the

agency among top managers. It took Congress, after alot

of bad publicity from 60 Minutes and the press in general

to reel them in.

But think about it for a minute. It is an outrageous violation

of individual freedom for any agency to require you to disclose

your entire financial statement without a good reason.

(Say for instance that you had not paid your taxes for several years)

Frankly, I am surprised some First Ammendment protection

group has not prevailed in reversing this regulation yet.

Governmnts all troughout history have trampled on individuals

for their own ends. This is just one tiny example. I could tell

you about many more another time.

What makes the USA unique and great is the Constitution,

the Federal separation of powers, and the Bill of Rights.

Your lawyer is your ONLY defense protecting you from the

enormous power of the Government. His job is not ONLY to

tell you what the law is (which he did), but how to play the

adversarial battle with the potential prosecutor. And this

battle comes down to a contest for information.

If he told you to lie while testifying in court, I would be

concerned. But to ignor a regulation which is almost never

followed and for which a conviction is very rare, may be

good advice.

JMHO

and if i were audited and the auditor asked me point blank if i had any offshore accounts? Would the lawyer be correct in advising me to lie?

[paulfr]

No.

If an IRS auditor asks you a question, that is nearly

the same as being in court. I personally would

not lie in that situation and would be surprised if

any lawyer advised me to lie there.

[phormio]

The fact is that by law Americans must report offshore accounts.  Not reporting is illegal.  So lawyers can and should advise their clients to break the law?

The rich and well connected corporations and individuals in the US have arranged to have special tax breaks and have successfully been shifting the tax burden off themselves and onto the middle and lower classes for quite a long time. This is a symptom of the corruption of the system that inexorably accelerates with the accumulation of vast wealth. Just because something is legal does not mean it is fair or just. Just because something is illegal does not make it morally wrong. Like many things in life - it is not black and white.

and if i were audited and the auditor asked me point blank if i had any offshore accounts? Would the lawyer be correct in advising me to lie?

I doubt if a lawyer would advise you to lie outright. The real question is, if you did lie ,and your lawyer knew it, would he be ethically obligated to reveal this to the authorities?

[NedKelly]

What is the situation about tax on earnings made outside the US ?

As an Aussie I dont pay any tax on my earnings made outside Australia after 90 days !

Soi was thinking that it is not such an issue to report your account to the IRS if your earnings were from outside the US ....... or does US make u pay tax on those earnings too ?

[paulfr]

NedKelly

I am not an expert, but I believe that an individual US citizen

who earns money outside the US is not required to pay

tax on those earnings. However it may depend on what he

declares as his principle residence.

A corportation is treated differently ..... but that is another subject.

But for a similar matter, check out my new post on Thai taxation titled ...

"Taxes for LT Falangs"

Cheers

[phormio]

NedKelly

I am not an expert, but I believe that an individual US citizen

who earns money outside the US is not required to pay

tax on those earnings. However it may depend on what he

declares as his principle residence.

A corportation is treated differently ..... but that is another subject.

But for a similar matter, check out my new post on Thai taxation titled ...

"Taxes for LT Falangs"

Cheers

This is not correct. As a US citizen you are required to pay taxes on income regardless of where you reside; however, assuming you live outside the United States and its possessions for more than half a year, the first appx $80,000 of wage income (from a non-US govt source) is deducted from total income(no tax on the first $80K or so).

Thats the big deal about opening an offshore account - the US govt does not know about it - and so can't claim you owe them taxes on it - and any investment gains will not be taxed. Likewise, if you earn income overseas in the form of wages, this generally will not be reported to the US govt. as your income, so the IRS(Internal Revenue Service) will not be aware of your income earned overseas.

[bkk_mike]

US tax law is a very good reason to not become a US citizen...

Taxing people on their worldwide income, even if they don't live in the US, is hardly fair, but those are the rules in the US.

I agree, that if you have the offshore account, by law, you should declare it to the IRS. The income from it can count towards your $80K of untaxed offshore income, which does make it marginally better than a US based account, where the interest would be classed as US source income.

Depending on where you're living, the other thing to check is if there are any double taxation agreements in place, as they could also help to reduce your tax bill, at least on income where you're already paying some sort of local tax on it.

[phormio]

US tax law is a very good reason to not become a US citizen...

Taxing people on their worldwide income, even if they don't live in the US, is hardly fair, but those are the rules in the US.

I agree, that if you have the offshore account, by law, you should declare it to the IRS. The income from it can count towards your $80K of untaxed offshore income, which does make it marginally better than a US based account, where the interest would be classed as US source income.

Depending on where you're living, the other thing to check is if there are any double taxation agreements in place, as they could also help to reduce your tax bill, at least on income where you're already paying some sort of local tax on it.

Remember that controversy a couple of years ago in the states, about how those multimillionaires and billionaires were renouncing their us citizenships and then becoming PRs so they could "avoid" US taxes ?

[phormio]

...

I agree, that if you have the offshore account, by law, you should declare it to the IRS. The income from it can count towards your $80K of untaxed offshore income, which does make it marginally better than a US based account, where the interest would be classed as US source income.

That's the understatement of the year (see bolded in quote above). I was unaware of this and would like to clarify. You're saying that you could move your investments from a US based bank/broker/fund company to an offshore company(say Cayman or Barbados - got any suggestions for a good place?), while living in Thailand, this NON-EARNED Income totalled with your earned income would get the $80K US foreign source income exception. Thats a great deal ! What about capital gains in say a mutual stock fund ?

For example, lets say you have a few hundred thousand dollars in US bonds based in a US brokerage account; if you move these bonds to a non-US based brokerage account, owning the same bonds while living outside US, the interest is now tax-free vis-a-vis the US govt and the IRS? Are you sure that the non-earned income is part of the foreign source exclusion via IRS rules ?

If you've got a bit of nest egg and are going to live overseas than moving to non-US based accounts gives you a major advantage.

Assuming I got it right above, do you know any countries and/or banks where a US citizen can easily open an account, while owning mutual funds and other investment vehicles registered in the US, and take advantage of the foreign income exclusion?

Depending on where you're living, the other thing to check is if there are any double taxation agreements in place, as they could also help to reduce your tax bill, at least on income where you're already paying some sort of local tax on it.

Is there a double taxation treaty between the US and Thailand ?

[phormio]

Oops.

The real scoop on US foreign earned income credit can be found on this link at the IRS site:

IRS Faq on Foreign Income & Income Exclusion

Turns out the physical presence test requires 330 days presence in a foreign country , not the 180 days I previously stated.

[phormio]

And finally, to answer my own question by reading the IRS link (preceding post) on the US govt's IRS rules on foreign EARNED income inclusion - investment income(interest,Dividends,cap gains) is not excludable. Things like wages are EARNED and are excludable from income considered to be taxable by the US for US citizens/PRs living outside the US.

[phormio]

had a conversation with a "lawyer" friend of mine the other day.  I pointed out that as an American there was not a lot of advantage to maintaining one of these tax free offshore accounts.  I stated that the account must be reported to the IRS.  His response was something like  "yeah but you did not have to report it as they will never find out".  We went back and forth on this for several minutes but he insisted that in fact it was stupid to report such an account.

This guy wont be getting any of my business. how could I trust someone who says that? 

Am I overreacting or what?

As a follow up you might want some basic info on offshore accounts:

Straight Dope on Offshore Accounts