Hello. My name is Thomas (Tom) Azzara. I came to Nassau, Bahamas in 1990. I had recently written a book on tax havens and the US tax law covering their use (and abuse) – “Tax Havens of the World” (8th edition 2003). My mentor into this field of Internal Revenue Tax “Code” and the US Treasury Regulations was a law professor and author named Marshall J. Langer, who graduated summa cum laude from the Wharton School of Finance. Langer’s books (including his “Practical International Tax Planning” – formerly titled “How to use Foreign Tax Havens (1972)) are in every major college law library in the United States still.
In 1997, I was audited by the IRS after forming more than 650 Bahamian IBCs. That was no accidental inquiry into my financial affairs, and my name was not pulled out of someone’s hat. The IRS is a formidable foe – as 100 Swiss banks have recently found out. Several of the banks on the list below were forced into liquidation by the IRS. Who else do you know could collect over $1.5B from Credit Suisse and $650 million from UBS, and obtain guilty, criminal pleas to boot from all 100?
The IRS and the US Justice Department has just begun their prosecutions of Cayman Island banks only last month. That court room drama was a solid victory for them. And.., it is just the beginning for Cayman bankers. Like a junk yard dog, you never want to run into these guys. The IRS is relentless, well funded and powerful.
The IRS is the enforcement arm of the US Treasury Department (whose tax writers write the US Tax Code I study to this day).
As for my own 1997 audit, it turned out that one of my clients back then was a CPA and an IRS enrolled agent, and he took on that IRS audit. Three months after the audit began; I received a short, one sentence letter from the IRS. I owed them no money for the tax years audited it said. Whew… What a relief!
The IRS is not and never will be anyone’s friend. Believe it or not, the IRS did not ask me for one bank statement – offshore or onshore. You never volunteer to give the IRS anything they don’t ask for in an audit my advisor GE warned me. Of course, I had filed that FBAR anyway – unlike the American clients in the Justice Department’s link above.
UBS gave the IRS 4,450 names of Americans that had undisclosed accounts with them (i.e., no FBARs filed with the US Treasury Department). The IRS has prosecuted at least 100 of these non compliant US taxpayers that relied on Swiss bank secrecy … so far. All 100 were found guilty, and now have criminal records and can’t vote. Very few received any jail sentences, but the fines were upwards of 40% of the amounts undisclosed in the offshore accounts. Had they just filed that FBAR they would not have been investigated or prosecuted IMO.
I have filed a tax return with the IRS every year as required, and a FBAR every year since 1995 as well. With my annual tax return 1040 I file an IRS form 2555 (Foreign Earned Income Exclusion = FEIE). The IRS form 2555 allows me to exclude from income up to $72,000 in salary from the offshore company I work for. Today the annual FEIE limit has been raised by Congress to $100,800 (2015). If you don’t file the Form 2555 with you tax return, you don’t get the exclusion.
Using the tax code, I managed to keep my tax liability very low, and it was all legal the way the US government wants it. To qualify for the FEIE, you must be a US Citizen and live outside the United States 330 days of the year. It doesn’t matter if you live in a tax haven or not. Only an American citizen is entitled to the Foreign Earned Income Exclusion. A husband and wife team could exclude up to $201,600 annually. Both get an equal allotment under the tax code.
The name of the offshore company I work for is on my US tax return (i.e., the Form 2555) every year, but the company itself does not have to file a US income tax return (form 1120) or pay income taxes.
My specialty is Passive Foreign Investment Companies (or IBCs as they are called offshore) and Qualified Electing Funds (QEF). Legal tax avoidance is the goal.
Here is the IRS Form and instructions for Form 8621.
You can read more about me and my tax writings at my LinkedIn page.
No FBAR means Americans with undisclosed accounts will be criminally charged and convicted if caught. IRS has won 100% of FBAR cases via the UBS probe.