Tax Evasion, Offshore Havens, Banking, Privacy and the IRS

What are the boundaries between legitimate tax planning, tax avoidance and outright tax evasion? It seems the lines are becoming more blurred with each passing day. The issue has been front-page news around the world over the past several months due to world government authorities' successful campaigns to curb the illegal use of offshore banks, tax havens and employment in hope of combating widespread tax evasion.

In the US, UK and Australia, tax authorities are actively targeting offshore schemes and expatriates at an alarming rate. Outside of unscrupulous promoters of offshore tax havens (and their clients), the tax-collecting arms of these governments are also targeting the millions of people living and working around the world who may be unknowingly committing tax evasion.
Here are some recent examples:

• June 2005: In the midst of a broad crackdown on offshore tax shelters using the Patriot Act, the IRS warned US expatriates working and studying abroad that they risk up to a $10,000 fine or 50 per cent of the value of the offshore account if they fail to report overseas bank and financial accounts.

• June 2005: The New York-based Big Four International accounting and consulting giant KPMG has been the subject of an IRS investigation seeking information on the firm's clients that used offshore tax shelters and bank accounts.

• June 2005: Eric Bassingthwaite (an alias) operating out of Channel Islands, and Philip Egglishaw, a Geneva-based Swiss attorney, were targeted for their roles in assisting wealthy Australian attorneys, executives and celebrities (all now under criminal investigation) in illegally sheltering more than $300 million is assets offshore.

• July 2005: In the UK, the HM Revenue & Customs office crackdown on tax evasion and offshore banking resulted in criminal charges for hundreds of client of "offshore" services.

• October 2005: The US Justice Department and IRS filed indictments in the largest criminal tax case ever. Nineteen individuals were charged with conspiracy to defraud the IRS, tax evasion and obstruction of the Internal Revenue Laws arising out of illegal tax shelters constructed by the Big 4-accounting firm KPMG and others. The charges state that the shelters generated at least $11 billion in fraudulent "phony" tax losses and resulted in at least $2.5 billion in taxes evaded by wealthy individual clients.

• January 2006: David Alan Struckman, co-founder of the "Institute of Global Prosperity" (Global Prosperity)-an organization that sponsored offshore wealth-building seminars, was deported from Panama to the US to faces charges of conspiracy to defraud the United States by impeding the IRS and tax evasion.

• May 2006: New Zealand lawmakers proposed changes to taxation on investments in offshore shares in an effort to assist Inland Revenue, its tax collecting arm, in investigating tax evasion and avoidance.

• June 2006: Paul Allen, a Massachusetts residence and owner of a security alarm installation business, was sentenced to federal prison and fines for using offshore banks to evade $95,000 in U.S. taxes.

A word of caution: Beware…though the tax man certainly can't catch everyone, their powers and methods are becoming increasingly sophisticated.