Clients need to be cautious regarding setting up offshore bank accounts. There are a large group of unscrupulous practitioners that solicit and persuade unknowing clients to trust the empowering secrecy laws of the foreign jurisdiction and encourage them not report ownership of the funds to the Internal Revenue Service. This is tax fraud and will get you in legal and financial trouble. The Internal Revenue requires U.S. taxpayers to report any financial interest in any offshore account by filing a form 90-22.1 with their tax return.
A foreign bank account can be useful when asset protection planning. However protected funds often remain in the United States. Judgment creditors can discover an offshore account by reviewing a client’s personal financial statement and/or the client’s tax returns.
Professional planning would allow us to structure the offshore account so that the assets are not included on the balance sheet of the client. A properly planned asset protection trust should do this since the owner of the account is in the name of the trust not the client. The offshore account should never be in the individual name of the client.
In addition clients can minimize the exposure to creditors from reporting the account to the IRS on the required Form 90-22.1. Note that under tax law even though the client is not an owner for legal purposes can be considered the owner of the accounts for tax purposes in a typical asset protection trust. There are several techniques to minimize the risk from the filing of the 90-22.1, although this risk is minimal if the trust is set up long before trouble arises.