It's April 15, the day when all responsible citizens
have to send in their annual pound of flesh to the Internal Revenue Service.
Unless, of course, you are a tax exile.
So, while Forbes does not condone tax evasion, we are
especially sympathetic to how many of our readers are feeling this time of year.
While most taxpayers only fantasize about skipping off to some tropical offshore
haven beyond the clutches of the IRS, however, every year a few scofflaws,
cheats and dodgers abandon the U.S. in favor of someplace where they can keep
their money out of Uncle Sam's hands.
Click here for the slide
Besides the obvious financial
incentives, most tax havens offer plenty of other attractions as well. Most of
them are located in exotic destinations with tough extradition laws and plenty
of services that appeal to the wealthy, such as secretive private bankers, good
personal security services, luxury housing, salubrious climates and better than
average restaurants and nightclubs.
Avoiding taxes, however, is no longer just a question
of hopping on a plane and heading somewhere tropical. The U.S. government has
been cracking down on tax exiles since 1996, making it increasingly difficult
for individuals, as well as corporations, to get away with nonpayment of taxes.
(Citizens of other nations, however, have it easier. The U.K. has very liberal
laws that allow British subjects to spend up to half a week, every week, in
Britain and still qualify as a tax exile, which greatly reduces but does not
eliminate income tax.) Many countries that once provided cushy welcomes for tax
evaders have been read the riot act and rolled up the red carpet.
For people who think that they can still zip off to
Panama or Switzerland to avoid paying taxes, think again. Beverly Hills,
Calif.-based international tax lawyer Gary S. Wolfe says that while
countries such as the Caymans do not impose taxes, that does not apply to U.S.
citizens or residents. "The mistake that Americans make is that they go
offshore and think that they don't have to pay any taxes," he says.
"The reality is that U.S. citizens are taxable anywhere in the world."
Because of that, some U.S. citizens instead choose the
legally and emotionally difficult course of expatriation. But according to John
Ambrecht of Ambrecht and Associates, a Santa Barbara, Calif.-based estate
planning and trust adviser, the IRS won't make it easy on you. Even if you
choose to give up your passport to become a citizen of, say, St. Kitts, it can
take up to ten years before the U.S. no longer has jurisdiction over your U.S.
To complicate matters further, tax ex-pats may find
their re-entry into the U.S. denied, which can be difficult in case of medical
or family emergencies, or just simple nostalgia for home. "We have seen
some people move to New Zealand [for less than the ten-year period], and then
when they want to come back, it's a real problem," says Ambrecht.
What Ambrecht does recommend, however, is using such
offshore havens to help with tax planning or asset protection in order to
minimize taxes, not to avoid them--particularly if you want to leave money to
your family without getting in trouble with the IRS.
"You can create situations where certain income is
not included in your U.S. taxable income but is considered foreign-sourced
income," he says. "While you still have to report the income, you get
it excluded as U.S. taxable income if you have planned correctly. Additionally,
if you have planned correctly and you have assets in strategic jurisdictions,
you can protect these assets from U.S. creditors."
In other words, avoiding the IRS isn't easy. Most
people, after speaking with their trust and estates lawyer, may decide that as
satisfying as the idea might be, in the long run it's better to pay the taxes.
That is why if you want to feel like a tax exile for only a few days, we
recommend instead that you visit one of the tax havens on our accompanying list
tax haven hotels. That is, of course, assuming you have any money left after
you've paid your taxes.