Abusive Offshore Tax Avoidance Schemes
Abusive offshore transactions generally involve foreign jurisdictions offering financial secrecy laws in an effort to attract investment from outside their borders. These jurisdictions are commonly referred to as "tax havens" because, in addition to the financial secrecy they provide, they impose little or no tax on income from sources outside their jurisdiction.
It is difficult to quantify the amount of assets being held offshore or the rate at which the industry is growing. It is estimated that several trillion dollars in assets worldwide are held in offshore tax havens. Presumably, transfers from the U.S. represent a large share of this wealth. One authority has estimated the annual revenue loss to the U.S. at a minimum of $100 billion.
Tax haven service providers and their clients know their actions are veiled from tax authorities by banking and commercial secrecy laws and by lack of tax treaties or tax information exchange agreements. They create paper entities to disguise the real parties to the transactions, and many are willing to create false documents to disguise the real nature of transactions.
Several countries aggressively market themselves as tax havens. Some have gone so far as to offer asylum or immunity to criminals who invest sufficient funds. They permit the formation of companies without any proof of identity of the owners, perhaps even by remote computer connection. Generally, though, such extremes are found in emerging nations where the stability and security of the financial, legal, and political systems is questionable.
If you are an United State's citizen or a resident alien, you must report all of the income you earn world-wide on your income tax return. In addition if you have a financial interest or signature authority over a financial account located in a foreign country and the highest balance during the year is greater than $10,000 during the year a FinCEN Form 114 Form (FBAR) needs to be electronically filed separately from your income tax return. The due date for filing this form is June 15th. Also, If you have an interest in specified foreign financial assets and the total value is greater than $100,000 (unmarried is $50,000) at the end of the year or $150,000 (unmarried is $75,000) at anytime during the year you are required to file a Form 8938 with your return.