Offshore account for tax-free compounding?

Discussion in 'Trading' started by Specterx, Dec 19, 2010.

  1. Take the following scenario:

    1) Start a corporation in a tax-favorable jurisdiction (low to zero corp/cap gains taxes). Say LLC or the foreign equivalent, with you as the principal/owner, or however this is generally arranged. Caymans, Isle of Man, or wherever.

    2) Open a brokerage account in the corporation's name, capitalize it, and trade U.S. markets through the account.

    3) Money pot grows far faster than it would if Uncle Sam was skimming a bit off every one of your winners.

    4) Whenever you want to 'repatriate' the profits, you declare a dividend distribution (to yourself) and pay full U.S. taxes on such. Report everything on U.S. tax forms as the law requires.

    Is this feasible? Is there any reason that it wouldn't work, or wouldn't be a good idea? Any obvious snags or pitfalls? Anyone actually done/do something like this? Under no circumstances do I want to do anything illegal, or have to rely on 'not getting caught.'

    And you don't need to say it, I know I can't rely on ET to keep me out of jail and need to consult lawyers and tax professionals before trying anything like what's described. Just gathering information.
     
  2. That idea has more holes than Swiss cheese.
     
  3. Yes, or you could move out of the USA, and after 10 years have all that money 0% taxes paid in your hands living on a beautiful beach in a great climate in a country with extremely low unemployment rate.
     
  4. The 10 year clause was eliminated when the exit tax was passed in '08. Now it's just a simple one-time tax on all unrealized asset gains, after which you're scott free.
     
  5. What rate ?

    I'm not an USA citizen so I don't have that problem.
     
  6. Not sure offhand, I'd have to go look it up. I don't think it's the regular long-term capital gains rate (currently 15%), likely higher, but I'm not 100% sure on that.
     
  7. Paul Tudor Jones with his BVI fund and Soros with his Antilles fund don't have a problem, why would you?
     
  8. What about Bahamas ?
     
  9. The IRS applies the law depending on who you are, tax avoidance by big multinationals is "tax planning", tax avoidance by the little guy is "tax evasion".

    The IRS has full discretionality on these cases, and it's their call whether your shelter is OK'd or not.

    If you're a nobody then they will say your offshore companies have no economic purpose other than tax avoidance, that the companies are passthrough if in your name, sham companies if under somene else's names, and tax is owed on 100% of the profits.

    But, if you pay a few politicians off, for example through campaign contributions, then and only then, they might say yours is a legitimate tax planning shelter.

    That's why the big guys, Soros, PTJ, Google etc can get away with it but the little guy can't.

    The IRS itself recognizes this two-tiered policy.

    http://www.irs.gov/irs/article/0,,id=232223,00.html

    "In the individual arena, we have continued to make a significant dent in offshore tax evasion. Many taxpayers who had unreported assets and income overseas have come back into the fold, and taxpayers understand that the risk of being caught hiding assets offshore has increased significantly.

    As I have said before, I draw a sharp distinction between rooting out individuals hiding their money in foreign tax havens and the IRS and Treasury creating ground rules for multinational corporations operating in a global environment.

    It’s no secret that multinational corporations engage in sophisticated international tax planning. We recognize that much of this is perfectly legal and many businesses are trying to get it right. Of course, some are pushing the envelope too far and it’s here that we have issues. Our goal is to differentiate between the two; to be on top of our game in this analysis; and to ensure corporations are compliant with the tax law and stay compliant."
     
  10. moarla

    moarla

    when you can show that you have an office there with employies working for you , and the decision making is there, it will be ok. but if you trade from Florida, no no my friend
     
    #10     Dec 20, 2010