Offshore accounts are in the news again. Another massive data leak, this one referred to as the Paradise Papers, has resulted in the disclosure of the identity of a number of people and businesses that use these accounts. So what have we discovered from this most recent leak? Basically, we are coming to realize that these accounts are fairly common.
What is an offshore account? Although it is fairly rare in the legal or financial worlds, in this case the definition of the term is self evident. An offshore account is one in a country other than one’s residence. For citizens of the United States, this would include accounts in Canada, Mexico, India, England, etc.
Why use an offshore account? There are a number of reasons to have foreign accounts. These can range from convenience for traveling, aiding family members that live abroad or investment opportunities.
Aren’t these accounts illegal? The answer to this question is much more common in the legal world than the answer to the definition question above. In order to answer this question accurately it depends on the details of the account. The owner of the account must disclose its presence and meet applicable tax obligations. If the owner meets these obligations the account is generally legal.
Problems arise when these accounts are used in an attempt to evade taxes. Having offshore accounts to take advantage of tax savings is fine, as long as you are not keeping the presence of the account or the assets within it secret from the Internal Revenue Service (IRS).