Marc Roland quoted in Dow Jones Newswire

Dow Jones Newswires

Wealthy Grow Wary of Foreign Tax Traps

Jul,31,2012 03:35 PM EDT

By Arden Dale

Attacks on presidential hopeful Mitt Romney’s Swiss bank account and overseas tax havens have revived scrutiny of an issue that has caused angst among many wealthy investors: offshore tax avoidance and the U.S. government’s aggressive crackdown on tax dodgers.

The renewed focus on Mr. Romney’s overseas holdings simply reinforces the notion that the wealthy need to be more mindful than ever about foreign tax traps as they navigate tougher new tax-reporting rules.

“There can be a taint to maintaining offshore activities in this environment,” said Stephen Breitstone, a partner at the law firm Meltzer, Lippe, Goldstein & Breitstone LLP in Mineola, N.Y.

The Foreign Account Tax Compliance Act, a 2010 law that has become effective in stages since it was passed, has meant more, and sometimes duplicative, reporting. Someone with more than $10,000 in an offshore account, for example, already must file a Report of Foreign Bank and Financial Accounts with the IRS. Now, anyone with at least $50,000 in a foreign account will have to report it separately.

Penalties under the new law can be very steep. Also, IRS investigations into missed filings can be devastating to reputations. Nowadays, the head of a public company or, say, a wealthy real-estate owner who plans an initial public offering of a REIT may shy away from deals they might have jumped at in the past, Mr. Breitstone said.

Meanwhile, the wealthy continue to witness the results of a high-profile crackdown the IRS and U.S. Justice Department launched in 2009 on tax evasion through bank accounts in Switzerland and other foreign nations. UBS AG (UBS, UBSN.VX) and several other banks were targets in these efforts.

Earlier this week, two former UBS clients were sentenced to a year and a day in prison for hiding millions of dollars in secret, offshore bank accounts in Switzerland and other banks around the world. A federal judge also ordered the California couple to pay more than $2.5 million in penalties.

Financial advisers who work with the wealthy steer them away from arrangements that could put them on questionable ground with the IRS, said Joseph J. Perry, the partner in charge of the tax-and-business-services practice at Marcum LLP, an international accounting firm.

Tax laws aren’t white or black, and that makes it tricky to sort out right from wrong at times. Investments that fall into the so-called gray area, Mr. Perry noted, include foreign companies that originate loans or lend money in the U.S.

Nonetheless, doing the right thing–rather than doing the thing that looks right–is what’s important, said Bedda D’Angelo, president of Fiduciary Solutions Inc., a registered investment adviser in Durham, N.C., with around $65 million under management.

The vast majority of investment advisers let their clients know when a strategy is illegal, but steering away from a perfectly good investment because it might make the client look bad is a breach of fiduciary duty, Ms. D’Angelo said.

Despite the anxiety, some overseas business dealings still make sense for the wealthy. Marc R. Roland, chief compliance officer and a portfolio manager at Dean Roland Russell, a registered investment adviser in San Diego with about $100 million under management, said clients at his firm have bank accounts in South Korea, New Zealand, Singapore and Australia.

Dual citizenship, a job abroad and strong ties to a foreign country can all be good reasons to bank overseas. Money stashed overseas can be a nice hedge against the falling dollar. And many foreign accounts pay interest, even with a strong dollar–so, after currency exchange, the owner is better off.

The perception may be that you’re doing something wrong if you have a foreign bank account, Mr. Roland acknowledged. “But it only becomes an issue when it is not disclosed on your federal income tax return and to the Treasury,” he added.

(Arden Dale is a Getting Personal columnist who writes about personal finance; she covers topics including tax and estate planning, retirement, investment strategies and financial needs of small businesses. She can be reached at

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(END) Dow Jones Newswires

July 31, 2012 15:35 ET (19:35 GMT)


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