News and Commentary by Christian Reeves

Offshore Investment

Aged Population to Stress the Economy

Aged populations will be the norm by 2020, placing a great deal of stress on world wide economic systems, especially those founded on government backed treasuries and bonds. Other areas of weakness will be Social Security and Medicare. As our population ages, we can expect higher taxes on our IRA and passive investments. Here’s why the average age of our population matters and how to protect yourself.

Definition: An aged population is a country where 7% or more of the population is 65 or older. A super-aged society has 20% or more of its citizens over 65. We assume people will retire at 65.

Over the next 6 years, the number of super-aged societies will increase from 3 to 20. According to an August 6th report from Moody’s, this nearly seven fold increase will place a great deal of stress on our economy and the United States dollar.

Here’s Why Aged Population Matters

Studies have shown that, as a population ages, the demand for treasuries and bonds increase. The higher the average age, the higher the reliance on fixed income government backed instruments. The bottom line is that pensioners go for fixed income instruments as “safer” than stocks and real estate.

Large changes in behavior move markets. Higher demand for fixed income investments will push prices down. But, the U.S. is now returning about 2%, and 45% of the world markets are returning 1% or less on their government backed fixed income instruments. There’s just no where for these markets to go.

But I’m getting ahead of myself. Let me take a step back and explain.

Of the developed nations, most of the European Union is aged. Also, the United States, Canada, and Australia have aged populations. The super-aged nations are Germany (with returns on bonds of 1% or less), Italy, and Japan. Japan has the oldest average population in the world.

By 2015, Finland and Greece (a model of financial stability) will join the group of super-aged nations. The Netherlands, Portugal, Slovenia and Sweden will arrive at the party by 2020. Eleven more countries will pile on by 2025.

Of the developing nations, or the BRICS, Russia, Brazil, and China are all aged. None are at risk of becoming super-aged.

These changes have a profound effect on our economy. For example, Moodys found that world savings declines by .5% to 1.2% for each 1% increase in the aged population. That is to say, for every 1% increase in those 65 or older, we see a .5% to 1.2% decrease in total savings.

As retirees begin to deplete their IRA accounts, and live on their savings rather than saving and spending their salaries, the average level of savings decreases. When countries become aged or super-aged, the result can stress the market.

When you combine this with lower returns on treasures and fixed income instruments (bonds for example), we can expect the level of savings to decrease at a faster rate. As returns decrease, retirees will need to reduce their expenses (quality of life) and increase their rate of withdrawal.

Let’s look at another statistic…yes, I’m in a numbered state of mind today.

The “support ratio” is the number of eligible adults expected to be working. These working adults are paying in to the system and keeping the system afloat. As the average age of the population increases, the number of workers paying in to the system decreases, further straining an already dire situation.

The lowest support ratio is found in Japan. This country has 48.7 persons aged 65 or over for every 100 eligible worker in the 15 to 65 age range. By 2020 the burden of 1 retiree will be carried by only 2 workers. A ratio that many believe to be unsustainable.

Thirteen European countries, including Sweden and Germany, will have ratios between 2.7 to 1 and 3.3 to 1 by 2020. Canada is currently at 3.6 to 1 and the United States is at 3.9 to 1. In Asia, South Korea is 4.6 to 1 and China is 6:1.

Note that these numbers count eligible workers, not the actual number of people in the workforce. The higher a country’s unemployment rate, the greater the threat.

Nations in current financial crisis with extremely high unemployment rates are under more immediate pressure than those with lower unemployment. Greece and Portugal have more pressing concerns with their aged populations than does Germany or Japan.

The United States is hiding the truth in its unemployment  statistics. While the rate seems to be improving, we don’t know how many workers have simply stopped looking for work and therefore are no longer considered unemployed. We do know the U.S. has a 62% labor participation rate. If applied to our support ratio, it could move from 3.9 to 1 to 2.2 to 1 (though, this is a mixed bag and like comparing apples to mangos).

What does all this mean to you?

  • We can expect even higher taxes on capital gains and retirement account distributions.
  • The nationalizing of the retirement account system to cover debts from Social Security becomes more likely.
  • The age of retirement may be increased.
  • The assets within your IRA will become targets of the IRS and other cash strapped agencies. Remember that the IRS may seize your retirement account and State laws, such as homestead exemptions, don’t protect you.
  • As the government continues to focus on controlling capital, limitations on IRAs will increase. Most believe the right to take your IRA offshore will be eliminated.

The bottom line is that retirees will be required to make even greater sacrifices to keep the U.S. financial system afloat. It will fall upon you to keep the economy together. We don’t know exactly what form these forced contributions will take, but we know they are coming.

I hope you have found this post on our aged population thought provoking. For information on how to take your IRA offshore, or for questions on any article on this site, please send an email at

IRS Criminal Investigation

IRS Criminal Investigations on the Rise

If you thought an IRS audit was bad news, just wait until the IRS agents with guns come and take you down.  The IRS Criminal Investigation Division, or CID, can seize your records, tap your phone, spy on your emails, and treat you like a major criminal – all for failing to pay up.  The IRS CID has the ability to take everything from you… including your freedom.

Once indicted, you have a 98.5% probability of going to jail.  The average sentence is 27 months.  And these weapons of mass destruction are being turned on all high net worth Americans, not just those with offshore accounts.

Under President Obama, the wealthy are more likely to come under criminal investigation.  The IRS Criminal Investigation Division (CID) has increased referrals for prosecution by nearly 40% under this President and I expect this number will double (to an 80 – 100% increase) before his term is over.

Just as the IRS targeted conservative fund raising organizations, they are now being accused of hitting wealthy Americans that “fit the mold” of Republican donors.  Many, such as Grover Norquest of Americans for Tax Reform, claim that some of these attacks are political assassinations meant to cut off money flow to rivals.  That the IRS is targeting Republican donors for criminal prosecution.  Others have suggested that its wealthy conservatives who are the big fish each IRS CID agent wants to mount on his wall.  That it’s open season on the wealthy in America.

Here are the stats:  The IRS CID recommended criminal prosecution in 4,201 cases last year, an increase of 38% from 2012.  The Department of Justice indicted 2,010 of these referrals.  Expect these numbers to increase during the remainder of Obama’s term as the IRS CID and DOJ are hiring as quickly as possible.

Let me give you a little background.  Just 10 years ago, no one other than drug dealers and money launderers were charged with offshore tax crimes.  These laws, and their draconian penalties, were intended to target dangerous individuals who couldn’t be taken down otherwise.  Think Al Capone and that ilk.

Tax preparers and lawyers had never heard of what is now the IRS’s primary weapon: the Foreign Bank Account Report (FBAR), though it had been a law on the books for decades.  There was no effort to criminalize most forms of tax planning and offshore tax matters were civil cases, just like traditional IRS audits.

That is, until the IRS learned how profitable putting Americans in jail could be!

From 2006 though 2008, the IRS Criminal Investigation Division waged an all out war on offshore accounts.  The Swiss bank UBS eventually fell and released the names of 3,000 of its clients, who immediately became targets of the CID.  So far, the IRS prosecuted about 550 of these individuals.  They selected one or two from each state to maximize the news cycle impact…to make sure their press releases got on every news cast and in every paper in the country.

* Eighty percent of the press releases just happen to come out in the weeks before April 15. Are they criminals or pawns in the Government’s marketing campaign?

This strategy worked great for the IRS…maybe not as well for the pawns.  It brought in about $10 billion in new revenue from taxes, interest and penalties.  Thousands of high net worth individuals, as well as average citizens living abroad and those with extended families in foreign countries, all lined up to pay to avoid jail.

Very little of these payments came from actual targets of the IRS CID.  Those with offshore account went broke defending themselves and while in jail.  Most of the revenues came from expats and others with accounts that the IRS did not know of..which was the purpose of the campaign.

NOTE: If you have an offshore account and don’t want to become one of the pawns, please take a read through my post on the IRS’s Voluntary Disclosure Program.

After maximize returns on their attack on the Swiss banks, , the IRS Criminal Investigation Division and other government agencies turned their sights of fining just about any international bank they could find. They quickly learned that they could fine banks just about any amount of money and get paid.  This brought in a few more billion and the free for all was on.  See my post on the $9 billion extorted from the French bank BNP Paribas.

IRS criminal investigations have been so profitable that the government is doubling down and hiring new gunslingers as fast as they can sign them up.  This also means that they will need to expand their number of targets and their case selection criteria.

As a result, the IRS is now targeting all wealthy Americans, not just those with offshore accounts.  Just because you have no international exposure, don’t think you’re safe from the new and more aggressive IRS CID.  Many tax matters that were once civil cases are turning criminal.  The IRS has found its targets are much more pliable, and willing to pay big fines, when they are at risk of going to jail for a few years.

It is possible that these cases are targeting high net worth Republican donors.  At least, that’s how it appears to lawyers and targets in the fight.  And, considering the IRS’s track record on targeting political rivals (Republican foundations and Gov. Perry to name two), it doesn’t seem to far fetched that they would use the criminal system to cut the purse strings of Republicans.

* The IRS Director Doug Sholman paid nearly 150 visits to the Obama White House from 2010 to 2012, far more than any other IRS director.

To put your mind at ease, or to increase the pressure, depending on where you land on the financial spectrum, here is a summary of your IRS audit risks.

For most working families, the probability of going before the great collector is slim.  If you earn $50,000 to $100,000 per year, you have only a .06% chance of being audited.

For those with incomes of $100,000 to $1 million, it varies from 1% to about 5%.  If you are self-employed and filing a Schedule C, you are at the higher end.  A W-2 with no charitable contributions or capital gains and you are near the bottom.

Now for the bad news.  If you earn over $1 million, your audit risk jumps to 12%.  If you reach the top of the heap and have an income of over $10 million, you have a 25% chance of facing down a very aggressive IRS agent.

Note that a 25% chance of being audited means you will likely be under the microscope three out of every four years.  An IRS exam typically covers three tax years.  So, you have a one in four chance of being audited and, once selected, they will analyze three years of returns.

It’s these higher net worth individuals who have the highest likelihood of criminal persecution.  Of those earning less than $250,000, the risk of a criminal charge is minimal.  Eighty-five percent of the cases brought are filed against those earning $1 million or more.  Though, the UBS cases were an exception because the government needed targets in each state.

Once you’re targeted by the IRS Criminal Investigation Division, you have a nearly 50% chance of going to jail.  The DOJ prosecutes about 50% of the cases referred by IRS CID (at least until they hire more staff) and 95% of these settle.  Also, the average time to complete a tax fraud case is 2 years and the average jail sentence is 27 months.  That’s followed by 3 to 5 years of probation.

While the case is going on, you must report all of your comings and goings to Pretrial Services and submit financial statements each month.  Most find it near impossible to work while on Pretrial release…especially those with small businesses or the self-employed.

As a result of their finances and businesses being destroyed in this process, many families don’t survive.  About 1/3rd are divorced by the time the target gets out of jail.

The U.S. government is going all in on criminal prosecutions by the IRS CID.  It is by far the best returning division of the IRS and you can expect it to continue bringing in the cash in the years to come.

Will Anyone Stand Up?

The government fired the first shots in the war on financial privacy with the Patriot Act in 2001.  As we all cowered under our desks in fear of another terrorist attack, our freedoms went out the back door…and no one said a word.

The U.S. extorted billions from Swiss banks and ruined the lives of 550 of its citizens, all in the name of increased revenue.  Americas were used as pawns in the tax game and no one stood up.

Then the U.S. turned offshore bankers in to unpaid IRS agents with FACTA.  As a result, Americans are persona non grata at most banks around the world.  Yet, no one said enough is enough.

Now that the IRS CID is targeting the wealthy, possible for political gain, will anyone step up and say enough is enough?

When the IRS knocks down your door with men in military style clothes and weaponry, will anyone resist?

When it’s you handcuffed on the floor with your wife crying and your kids screaming in the corner, being restrained by wanna-be commandos in flack jackets and guns drawn, will anyone come to your aid?

If you have unreported offshore accounts and would like to know your options, please email us at We can review your situation and refer you to an experienced attorney if necessary.

If you are thinking of living, investing, or doing business offshore, and need an international tax and business consultant who will keep you in compliance with the US government, give is a call at (619) 483-1708.

U.S. Passport

Should I Give My Son a U.S. Passport?

My son Timothy is nearing his first birthday and our household is filled with debate and discord.  Should I give him a U.S. passport?  Is a U.S. passport his birthright or a curse?  Should my son identify as a U.S. citizen, a Panamanian, or both?

Allow me to give you a bit of background.  I am an expat American living and working in Panama.  I spent 15 years in the U.S. as a tax lawyer and now call Panama home.  Timothy was born in Panama, his mother is Panamanian, and he holds a passport from Panama.  By filling out a few forms he can become a U.S. citizen and become subject to the laws of my home country.

As a Panamanian, he has no trouble visiting the U.S.  We travel to San Diego often to see his grandparents.  He and his mother both have 10 year U.S. visas and I don’t expect travel to become an issue.

A Panamanian passport is a solid travel document that gives him access to most countries.  Had his mother been Cuban or Venezuelan we wouldn’t be having this debate…he’d have a U.S. passport.  Likewise, if his mother was from the U.K. or an EU country, we wouldn’t have an issue…I wouldn’t burden him with U.S. citizenship.

My position on second passports for U.S. persons is that they provide wealth and lifestyle insurance.  If you hold a second passport, you have the ability to give up your U.S. citizenship, stop paying U.S. taxes, stop reporting your income and assets as an expat, and become a more complete part of whichever country you have decided to make your home.  You might pay a significant “exit tax” but you will be free and international banks will no longer report your transactions under the Foreign Account Tax Compliance Act (FATCA).

While that’s all fine and good for adults, what about a child who’s just starting out in life?  Do I have a right to impose my biased worldview (all be it based on experience) by refusing him U.S. citizenship?  Is U.S. citizenship something to be valued or a burden that he will have to carry in the years to come?  Am I helping him to walk in my footsteps and to benefit from my experience?

Being the logical sort I made a list of pros and cons of giving little Timothy a blue passport:


  • Easy access to U.S. schools,
  • Can live in the U.S., as I did,
  • College scholarships and aid are available to U.S. citizens
  • Work in the United States during and after college,
  • Right to renounce U.S. citizenship if he chooses… gives him the right to decide when he’s of age,
  • Gives him a choice in where to live, go to school, and in the lifestyle he finds to his liking.  My choice is to live in Panama and vacation in Colombia, but I spent 35 years in the United States.  Without citizenship, Timothy wouldn’t have that opportunity.


  • The U.S. could prevent Americans from renouncing their citizenships or make it more difficult.  Since FATCA, expatriations have quadrupled and are expected to double again in 2015.
  • U.S. citizens are taxed on their worldwide income, no matter where they live.
  • U.S. citizens are a part of the U.S. tax, legal, and court system.  He will always be subject to the whims of U.S. judges and politicians.
  • U.S. citizens can be forced to return at any time for any reason.
  • A risk of falling in to the U.S. inheritance and estate tax system if parents were to pass away unexpectedly.
  • Costs of compliance with U.S. tax laws of about $2,500 per year on average.
  • Costs of $10,000+ to expatriate.

* If you can think of arguments on either side, please post them as comments.  This is obviously an area near and dear to my heart.

As I write them out, it seems most of the benefits apply through Timothy’s college days and then come the risks and costs of being an American.  It becomes time to pay the piper, as it were.

As long as the laws don’t change, one might come to the conclusion that he should hold U.S. citizenship through college and then renounce if he so chooses before making any real money.

Of course, the risks of a law change are significant.  Also, the risk that we as a family put off expatriation too long and he gets caught up in legal troubles or tax problems with the great collector is a concern thousands of expats, especially Canadians with U.S. parents, are dealing with today.

Let me take a minute to explain my thought process.  We American expats wear a scarlet letter A on our chests, which is now stamped on any financial transaction or bank account application we touch. The majority of international banks, brokerages, insurance providers, and mortgage lenders don’t want to have anything to do with us.  Since FATCA turned foreign banks tellers into unpaid IRS agents, we are persona non grata in many corners of the world.

And this will impact Timothy’s early life.  It will limit his ability to get a “starter” job at most companies in Latin America.  Almost no one is willing to hire an American citizen these days.

* Of course, as his mother points out, he can always work here at Premier!

Also, being an American means that the U.S. government will collect massive amounts of information on his life and financial history.  Is it right to allow the American authorities to invade his privacy from day one?  Is it preferable to keep him away from his unscrupulous and nosy Uncle?

And these issues extend to Timothy’s mother.  Spouses of U.S. citizens with shared ownership of assets are subject to FATCA’s disclosure requirements.  Because she chose an American (me), all of her personal data and banking information are likely to be shared with the United States.  This may currently applies to joint accounts, but I expect Panama to take the conservative or CYA approach of sending all data.  They will report on their own citizens if there is any risk of running afoul of the U.S. authorities.

Finally, if I don’t give Timothy a U.S. passport, is he at risk of being caught up in the U.S. tax system anyway?  Will banks only consider clients with U.S. addresses or passports and send them to the IRS?  Will they take the extra step of doing a forensic analysis of everyone’s account activity, legal status, and ancestry?

When you look at FATCA, a complete analysis of all customer data is what the law requires.  How far the banks will go is to be seen.

So, there’s my dilemma.  Do I give my son a U.S. passport?  Our household is greatly divided on the issue.  Your comments or suggestions are welcome.

When to Hold

When to Hold and When to Fold

With the U.S. market at historic highs, how do you know when to hold and when to fold?  Here’s the best investment advice I’ve seen:

“Buy at the point of maximum pessimism; sell at the point of maximum optimism.”  Sir John Templeton (1912 to 2008), known as the great contrarian.

I have always taken this to mean that, if you buy the same securities and at the same time as everyone else, you will get the same results as everyone else… which is to say, you will be average.

With the U.S. markets at historic highs, and logic (and simple math) telling us that returns over the next decade will be lower than the prior, we should be looking to move money in more dynamic markets.  Of course, most ignore what’s right in front of their face and are now dumping cash in the U.S. stock market after being on the sidelines for the last few years.  This makes no sense, but most buy on emotion and momentum rather then with their brains.

The investing masses expect the most from the market when the prospects are the worst and the least when things are at their best (prices at or near the bottom).  You can do better.  Don’t be a sucker who’s enthusiastic when stocks are expensive.  Be that guy or gal who knows value, diversifies out of a bad market, and move your assets and investments to safety.

Want proof of what I am going on about?  When the market was at its height in 2000, inflows were $288 billion.  When stocks were cheap in 2002, inflows were a mere $13 billion.  Don’t follow the herd, make your own way.

I’ll leave you with a bit of history on John Templeton.

At the outbreak of WWII, he bought nearly every NYSE listed company trading at $1 or less… and made money on just about every single one.  It was a simple plan:  identify weakness in the market and take advantage.

If the market is at a high, do the inverse, get the heck out.

Mr. Templeton was one of the first U.S. investors to see the benefits of diversifying out of America.  As a result, $10,000 in to his flagship international fund in 1954 was worth $2 million by the time he retired in 1992.

The Templeton growth fund continues this strategy and has averaged an 18.3% return over the last 5 years.

If you’re considering investing offshore, we can help.  We can set up an offshore foundation or offshore company, move your IRA to an offshore LLC and introduce you to quality banks and investors around the world.

If you want to get some of your assets out of the U.S., start by planting that first flag offshore in the form of an offshore company, foundation, and/or bank account.

We will be happy to work with you and we are the only experts providing both international formations AND U.S. tax compliance.  We will ensure you are structured as efficiently as possible and keep you in compliance with the U.S. tax code.  Feel free to phone or send an email to with any questions and for a free confidential consultation.

Attack on the Dollar

Russia’s Attack on the Dollar

Russia is mounting an attack on the dollar and will threaten your retirement account in 2015.  An attack on the dollar that results in a significant devaluation will have a major impact on your assets denominated in dollars.

As I said in my last post, France Attacks the Dollar, our mighty greenback is in trouble.  I now say that Russia will be happy to push it over the cliff.  Harkening back to the days of the cold war, Mr. Putin is leading the effort to replace the United States dollar as the world’s reserve currency.

First, remember the election battle between Romney and Obama.  Romeny claimed Russia was the number one international threat America would face in the coming years.  Obama claimed that his opponent was living in the 1980s to great applause… I guess no one is cheering now.

Here are the facts.  America fined the French bank BNP Paribas nearly $9 billion for a transaction having nothing to do with the United States.  Uncle Sam didn’t like the bank doing business with Sudan – who was on our naughty list, and put sanctions on this tiny nation.  France and the European Union had no such laws or regulations and no formal position against Sudan.

Well, the U.S. claimed the authority to regulate BNP because the contracts that it entered in to with Sudan were in United States dollars.  That’s right, the only connection to the U.S. was the currency in which the trades were in.

As you might imagine, this caused a great uproar in France and has led to a major attack on the dollar as the transactional and reserve currency of Europe.

Add to this the fact that the United States claims the right to regulate all foreign banks, including those who don’t have branches or offices in the States, that accept U.S. persons as clients, and you will see that the international community is being pushed hard by our government.  At some point, enough will be enough and the dam supporting the dollar will burst.

It is important to note that the U.S.’s economic power is based on its being the reserve and transactional currency of the world.  And, this status is based primarily on the petrodollar and our being the primary trading currency.

  • Petrodollar refers to the requirement that the U.S. dollar be used for all oil transactions.  When a Chinese buyer wants to purchase Saudi oil, they must use the USD, even if the U.S. has nothing to do with the transaction.

It’s this status as the world’s transactional currency that allows the United States to amass enormous debt while other countries pay for it through inflation.  As I’ve said, this will end some day… when these nations have had enough… and it will be time to pay the debt.

In to this landscape steps a new and empowered Russia… and the attack on the dollar gets a major ally (Russia and its group of countries, the BRICS).

Like oil contracts, Russia’s natural gas sales with Europe are priced in USD.  Mr. Putin is pushing hard to change to a petroruble or petroeuro… any currency but the dollar.  If successful, Russia will be able to decouple all of its trade from the dollar and Europe may follow.

As you read in my last post, France is hoping to do the same… dump the dollar.  And this will have a devastating affect on the demand for greenbacks.  For example, removing the dollar as the transactional currency from the Russia/EU hydrocarbon market will take about $1 trillion dollars out of the market.

Regardless of what France or the European Union decide, if Russia and its group of nations effectively abandon the petrodollar, tens of trillions of dollars will be wiped from the market.  Today, the USD might be riding high against the euro, but such a loss in demand, followed by a move away from the USD as the reserve currency in these countries, will cripple the dollar.  It could result in a cascade of nations and large industries moving away from the dollar and the regulation (and fines) that doing business in dollars now entails.

As this point, you might be thinking I’m just crying wolf… that the USD is here to stay and there is no way to escape it.  Well, I could point you to a number of examples in history where currencies and nations have fallen following a similar line of attack.  But, I’ll leave that to the historians.  I need only to direct your attention to the events of the last few years.

As I said above, the United States has begun to regulate ALL foreign banks that allow U.S. citizens or residents to hold accounts.  These banks may not have branches or offices in America, but we claim authority over them because they do business with someone holding a blue passport.

And this regulation is based on the threat of taking away that bank’s ability to do business with corresponding partners that hold dollar facilities.  Without the leverage/threat of prohibiting these foreign banks from doing business in USD, America would have no way to punish non-compliant institutions.

Many banks have responded by kicking American clients to the curb.  I estimate that 90% of the foreign banks without offices in the U.S., and 75% of them who do business in the States, are now closed to Americans seeking offshore accounts.

It doesn’t take a great deal of imagination to see that these same banks could decide to give up the dollar.  All they need is some support from the likes of France, Russia, and the E.U., and an alternative transactional and reserve currency.

In my opinion, we Americans should take action to protect our retirement accounts and assets against the coming times.  I believe the attack on the dollar will be (partially) successful and that a significant realignment of value is on the horizon.  It may not result in the annihilation of the dollar (at least, I hope it doesn’t), but it certainly will have a major impact on the value of the U.S. dollar denominated assets.

My suggestions are simple enough to implement.  First, get some or all of your retirement account out of harms way by diversifying offshore.  This is done by forming an LLC outside of the U.S. and investing your savings there.  You will find a number of articles on this site on how to move your IRA offshore.

Next, I suggest you invest in physical gold.  For thousands of years, currencies have failed while gold has stood strong.  Today is no different.  Please see my recent posts for more information.

I’ve written on why I believe the price of gold is artificially low and is due for an upward correction… especially against the dollar.  However, today’s low price is barely a factor in my recommendation to hold physical gold.  Gold will act as a hedge against any catastrophic event and can be turned in to currency or goods just about anywhere in the world.

Also, it’s legal for you to hold physical gold offshore and not report it to the IRS.  That’s right, you don’t need to report gold held in a vault offshore to the U.S. government.

Those are my thoughts.  I hope this article on the attack on the dollar has been helpful.  Feel free to call or email us at for additional information.  Alls consultations are confidential.

Offshore Investment

Quotes from Financial Giants Applied to Offshore Investment

These are my favorite quotes from the giants of finance that I apply to my offshore investment and my offshore business.  If you want to manage your offshore investment portfolio, follow this advice to diversification and wealth.

The two quotes that I follow in every offshore investment that I make, and in my business (which is based in Panama), is a combo from Warren Buffet and Peter Lynch.  Mr. Buffet says to “only invest in what you know and at the right price,” while Mr. Lynch says, “Buy what you know!”

I believe firmly one should only make investments, be they onshore or offshore, that you fully understand.  For this reason, much of my offshore investment is putting capital back in to my own business.  It also means that I thoroughly vet all rental real estate properties I purchase, and focus on hard assets, such as gold and wood.

To achieve this goal, I have taken control over my retirement plan.  Only I have the time, motivation, and am willing to spend the money necessary to vet each and every offshore investment.

If I left my retirement accounts to a U.S. advisor or custodian, he is not going to spend the time necessary to research, visit, and analyze a condo in Medellin.  He doesn’t make that kind of money from my accounts.  On the other hand, I expect a significant return from each and every offshore investment, so I am willing to spend my time, effort, and money to guarantee a high return to my IRA.

Next is Thomas Rowe Price, Jr., founder of T. Rowe Price & Assoc., probably not someone you’d expect me to be citing, too.  Premier makes quite a bit out of taking your retirement accounts and investments away from these big firms and under your control.  Well, my favorite quote attributed to Mr. Price is, “Most big fortunes result from investing in a growing business and staying with it through thick and thin.”

I interpret (or spin) this to mean we should make each offshore investment in a growing, tax efficient business and, if you own or control that business, even better.  Only you know for certain how your business is doing and are willing to fight through any adversity to keep it going.  Make your offshore investment count – invest in your business or start a joint venture offshore with a partner committed to these same principles.

Next, I’m a fan of Carl Icahn, who once said, “Complain loudly to force improvement.”  As you may know, Mr. Icahn rose to prominence as a corporate raider in the 1980s, and is now considered an activist investor… a term I guess means he or the industry has softened its approach.

In either case, Mr. Icahn invests in under-performing companies, complains loudly, and turns them around.  One way to apply this to an offshore investment or an offshore business is to bring American efficiency and work ethic to Latin America.  By pushing your employees, and complaining loudly about inefficiency, you are sure to increase revenues.

Also, because your investment is in a region with lower wages on average, you are able to compensate those who live up to your expectations.  You may have a tough time implementing this in some countries, but others, like Panama, already know what to expect and are more willing to adapt.

Now for two classics.  First, Nathan Mayer Rothchild (1777 – 1836) said that “information is money.”  This is the most important quote in this post for the American making an offshore investment in Latin America.  The bottom line is that there are two prices for many offshore investments, the local price and the gringo price.  The only way to avoid the gringo price is through information.

Keeping in mind that there is no MLS system for real estate in South and Central America, you must come about information the old fashioned way, just like Nathan Rothchild.  You need to build relationships, do your due diligence, speak to as many locals and real estate people as possible, and build a reliable spreadsheet of prices in each region in the city.

For example, you should be aware that name brand real estate agents in Panama often buy and flip property to an American to increase their profits.  I have also seen them push up the price and take a kickback from the seller.  Only through research and local knowledge will you be able to ferret out the best deals.

These backroom deals are common knowledge among Panamanians.  I have rented many apartments, and I am always asked if I want to offer the unit at the local rate or the gringo rate… which means I will need to wait for a sucker to come along, but will receive a higher monthly fee… often 50% or more than the local rate.

And this goes back to my first point of invest in what you know and at the right price.  Only someone willing to do the research in order to understand the market and the culture will have the information necessary to make an offshore investment.  There is no way your U.S. IRS custodian will be willing to put in this kind of time.  Information will ensure you get the best deals and can make a significant difference offshore.  But, you must be willing to work for and spend to obtain that information.

Second is Roger W. Babson (1875 – 1967), who said “diversification, caution and no margin debt are the keys to investing.”  Today, the only way to truly diversify is to go offshore.  If you diversify out of the United States, and out of the U.S. dollar, you are protecting against country and currency risk, which many believe are quite significant at this time in our history.  I also believe this should lead you to physical assets, such as gold and wood on the conservative side of your ledger and real estate with significant upside on the aggressive side of your offshore investment portfolio.

I personally don’t recommend leverage or margin debt in your retirement account.  I believe the only place for leverage in your offshore investment portfolio is in income producing real estate.

Margin interest increases your gains, but is also increasing your risks.  This is especially true with margin debt on currency trading, which can reach 100 times.  Very few should be taking these kinds of risks with their retirement money.

Of course, many don’t agree with me or Mr. Babson.  If you use margin debt in your retirement account onshore, then you must pay 35% tax on the income derived from this leverage, called Unrelated Business Income Tax or UBIT.  This UBIT is eliminated by taking your IRA offshore.  So, moving your retirement account offshore, and adding a UBIT Blocker Corporation to your offshore company structure, is the best way to go against the traditional wisdom of not using leverage in a retirement account.

The best quote and argument for taking control of your retirement account also comes from Mr. Babson.  He said, “Tell your dollars where to go rather than asking them where they went.”

By taking control of your retirement account, and directing those dollars to well researched higher yields and/or more diverse assets classes, you will be buying what you know and securing your retirement.

I believe William F. Sharpe sums up my feelings on offshore investments quite succinctly.  “Understand your risks!”

If you buy what you know, and have sufficient information to understand the market and, maybe more importantly, the culture in to which you are investing, then you will understand the risks of a particular offshore investment.  When you know your risks, you can take steps to mitigate those risks.

I will close with a quote from Alexander Hamilton (1755 – 1804), who said “sovereign strength begets financial stability.”  A basic reading of this statement will lead you to invest in countries which are stable and encourage you to do your research on the currency and balance sheet of any nation you are thinking of making an investment in.

On a deeper level, it might cause some to look back at the United States and see a country that has lost much of its sovereign strength because of its ever weakening financial position.  When you consider that holding accounts in U.S. dollars is a form of investing in the U.S., you might decide to modify your portfolio mix.

I will leave it here because I prefer to focus on the facts of offshore investment and doing business abroad.  I try, and sometimes fail, to keep politics out of it.

As a parting shot, here is one more quote from Mr. Hamilton:  “A nation which can prefer disgrace to danger is prepared for a master, and deserves one.”

U.S. Source Income

Tax Season’s Best Questions

We get a lot of good questions from Expats around the globe during the April 15 and October 15 tax seasons. Here are a few from this go-round.

Moving to a High Tax Country

Q: “I’ve just moved to Australia in the last year.  I currently have very little assets in the US and am working for An Australia company building a saving account in Australia. I am planning on purchasing a home and or investment property in the next 12 months with the intention of having around 5 properties in a few years.  I’m trying to plan in advance to avoid long term capital gains and use smart tax strategies.  I am planning on buying in Australia and own no property in the US.  Will the US tax my income and capital gains?  If you have any suggestions on resources to utilize I’d be very appreciative.”

A: Unfortunately for you, US tax will not be an issue. This is because your tax rate in Australia is certain to be higher than it would be in the US. For example, your personal tax rate in Australia will start at 19%, and max out at 45% on income over $180,000. Your rate in the US on income over $180,000 should be 28% to 39.6%.

Making things worse, Australia does not have a capital gains rate…capital gains are taxed the same as your ordinary income. Therefore, long term gains in Australia might be taxed at 45% compared to 20% in the US.

When you move out of the US to a country with a higher tax rate, you should not expect to pay any tax to the US. You must still file your US tax returns each year, but the Foreign Tax Credit should eliminate any US tax on your Australian income.

The Cost of Compliance

Q:  “Thanks for the wonderful newsletter. I hope I get this email to you. I believe that someone from US would have a very hard time when opening up an IBC as it gets really expensive to file IBC paperwork with the CPAs. If also exiting the US with expatriation, it would cause problems with expatriation taxes. My CPA keeps on telling me that it would require $4,000-$5,000 dollars just to file all the forms needed. I was shocked at the costs…I am confused since they both told me there are a lot of people selling these offshore vehicles which can get me in a lot of requirements and problems. This is the same answer that I got from various tax attorneys in USA.”

A: I agree completely that there are a lot of promoters out there selling IBCs that can get Americans in to trouble. One of the quickest paths to disaster for an American is using an incorporator that does not provide US compliance. For more on this topic, checkout my article on offshore asset protection scams.

To avoid these issues, you should use a US tax expert to form your offshore structure. Companies such as mine will ensure you are in US tax compliance from day one.

Regarding the costs of compliance, offshore corporations and IBCs file Form 5471, which is a US corporate tax return designed to report ownership, control, and income from these types of structures. This return will require a profit and loss statement and balance sheet, but should be no more complex or costly than a typical US corporate return, Form 1120.

If someone is operating a large business with employees offshore, is retaining earnings offshore, or has a number of partners in the business, Form 5471 can become expensive…just as a complex Form 1120 can become costly.

If you are using an IBC for basic asset protection, filing your US return should not be a major expense. We typically charge $850 for Form 5471. If you are being quoted $3,000 to $4,000, you are either working with a major firm such Delloitte, or your CPA simply doesn’t want to handle the returns and is quoting a ridiculous rate to prevent you from setting up a structure.

State Tax Issues for Expats

Q: “I have heard that some people move to Texas or Florida before going offshore. Can you tell me why? When I moved from California to Panama, and become a resident of Panama, I had no problems.”

A: Right, if both H and W move out of California and become tax residents of a foreign country, then their State issues are eliminated. However, moving to Florida or Texas before going offshore reduces the risk of being audited on this issue by California.

First, I note that California doesn’t have a FEIE. So, if you move out of CA for two years and intend to return, 100% of your income earned abroad is taxable in California. You might avoid Federal income tax with the FEIE, but not CA income tax.

Second, for those using the 330 day test, State tax can be a real problem. This is especially true of they keep their old home and other ties to the State.

For example, I have had the case where Husband works offshore and qualifies for the FEIE using the 330 day test (military contractor) and the case where he lives offshore and qualifies under the residency test. Their wives lived in CA with the kids.

For the contractor, CA has no FEIE and thus 100% of his income is taxable in CA. You see this a lot with military contractors and oil field guys in hostile countries…obviously, H is not a resident of Iraq and intends to return to wife and kids when his contract is up.

For the person using the residency test, CA says half of H’s income is attributable to W because CA is a community property State. Therefore, 50% of H’s income is taxable in CA.

A more common example for non-contractors might be H and W have a small business netting $100,000 in Panama. H qualifies for the FEIE using the 330 day test, but W does not. She wants to spend more time visiting the kids / grandkids, while H is just done with the US.

They put all of their income under H and pay no Federal tax using his FEIE.

Then, CA comes along and says W is really a resident of CA, 50% of H’s income is attributable to W, and 50% of the income is taxable in CA.

One reason W might be a resident of CA is that she did not break off sufficient ties to the State and she intends to return there someday.

Do you disagree with CA’s determination? Legal fees will be at least $10,000.

Offshore Contractors and the FEIE

Q: “Christian, I am writing for my son who is in Afghanistan.  He works as a contractor there but need to find a tax person who understands the 35 days in country rule.  I’m sure you do but don’t know militarily if that is different.  Would like your recommendation if possible.”

A: Yes, I am familiar with this FEIE and have had many contractor clients…maybe around 100 over the years. Here are the rules for contractors abroad:

First, a contractor is someone paid by a US or foreign corporation and not directly by the US government.

Second, a contractor may take the FEIE (military personnel do not qualify). Contractors must use the 330 day test and not the residency test. Here is a detailed article on the 330 day test.

The reason he must take utilize the 330 day test is that a contractor is not a tax resident of Afghanistan because he does not intend to make that his home. His intention is to return to the US after his contract is up. So, he must use the 330 day test and not the residency test, and may spend no more than 35 days in the US.

This means that he should spend most of his vacation days somewhere other than America. Remember, he is not required to be in Afghanistan to qualify…he need only be outside of the US. So, if a contractor is on a 2 months on 1 month off rotation, he should vacation in Latin America or the Caribbean.

It is important to note that, if a contractor misses the FEIE even by one day, then he loses the FEIE completely and all of his income is taxable.

Third, if a contractor is paid by a US corporation, then he must receive a W-2 with Social Security and Medicare deducted. If paid by an offshore corporation, then the contractor is not liable for these taxes.

Fourth, there is a special component of the Foreign Housing Exclusion for contractors in war zones. In most cases, he (the temporary worker) may only deduct the cost of maintaining one home abroad. If your employer provides housing, that is his tax home.

However, if he maintains a second, separate household outside the United States for his spouse or dependents because living conditions near his primary home are dangerous, unhealthful, or otherwise adverse, he can exclude / deduct this second home using the Foreign Housing Exclusion.

In other words, if he is in a war zone, he may exclude the value of two homes outside of the US…one for himself and one for his family. If he is not in a war zone, he may only exclude his primary offshore home.

Adverse living conditions include:

  • A state of warfare or civil insurrection in the general area of your tax home, and
  • Conditions under which it is not feasible to provide family housing (for example, if you must live on a construction site or drilling rig)

Moving a Business Abroad

Q: Christian, I have moved to Costa Rica and just love it here. I have a business and a corporation in Florida and need some tax advice. Can you help?

Q: You indicate you are operating a business through an FL company while living offshore. This will certainly increase the amount of tax you pay to the United States.

If you will qualify for the FEIE, then you should add an offshore corporation to your structure. The offshore company will bill the US company and you will draw your salary from the offshore company. This will eliminate self-employment and all other related taxes…reducing your US taxes by at least 15%.

Such a company should be in a country other than where you are resident, and one that will not tax your income. Therefore, I recommend Belize. I also note it must be an IBC and not an LLC.

Panama Foundation Scam

Is Panama the Next Singapore?

Panama vs. Singapore by By Christian Reeves and Lief Simon (

“Panama is the next Singapore,” declared a friend over lunch the other day. He wasn’t the first I’ve heard make the prediction.

Since finding its legs after the U.S. military handed over the canal, Panama’s economy has been on an uninterrupted upward trend. Even throughout the global recession of the past several years, Panama has racked up positive, albeit slower, growth.

Like Singapore, Panama is a shipping, banking, and corporate headquarter hub. Both countries are also tax havens. Where they diverge is gross domestic product (GDP) per capita and cost of real estate. Singapore’s GDP is about four times that of Panama, depending on the statistics you look at. The population of Singapore is about 50% greater than that of Panama, making this GDP figure even more stunning.

The average price per square meter for apartments in Singapore is eight times the current average cost in Panama City. (And we’ve been complaining about property values in Panama City!)

The point is that both of these statistics are being used as predictors for Panama’s potential. The consensus is that Panama is looking at at least another decade of continued tremendous growth rates.

I agree.

Panama has 100 times more land area than Singapore. As a result, there are different markets at work in this country. While real estate prices will continue to increase in Panama City as the country continues to mature and will, sooner or later, I believe, reach levels to qualify as “expensive” in a global context, prices in the interior of this country and in most of the beach areas will remain more affordable than those in comparable options in the United States. That will allow Panama to continue to attract retirees from North America and Europe.

Banking, shipping, business, tax benefits, and retirees: That is a dynamic combination for the Panamanian economy, which has grown at a rate of at least 7.2% per year every year since 2004, with the exception of 2009 (the “slow year”), when it grew at a rate of 3.9%. Unemployment is low, at 4.2%. In fact, the country is growing so quickly that it can’t educate and train its own citizens fast enough to keep up with the ever-expanding job market. The new “Specific Countries” residency visa, which comes with the possibility of a work permit for citizens of 47 countries, is one attempt to ease the strain the country is experiencing trying to find qualified workers for all the international companies relocating here, not to mention the local businesses and banks.

Global Banking Haven?

Historically, Panama has been generally acknowledged as a “banking haven.” No question, this is an international banking center; there are currently 78 banks licensed in this country. However, there is no longer any pretext of banking privacy or secrecy; not since November 2011 when Panama signed an exchange-of-information agreement with the United States.

Still, there are a lot of banks here and a lot of banking options. Like most offshore banking destinations, Panama offers two kinds of banking—local and international. Of the 78 banks licensed in Panama, 2 are state owned, 28 are international banks, and 48 are general licensed banks. International banks can only take clients from outside Panama, while general licensed banks can have both local clients and clients outside the country. The main difference from a practical point of view is that international banks don’t offer day-to-day banking services such as checking accounts or mortgage lending. These are places to keep investment, not operating, accounts.

You can see the full list of banks in Panama here. LINK TO

The problem with most of the 48 general licensed banks in Panama is that, while they can take foreign (that is, non-resident) clients, in the current climate, they tend to not want to. That said, a colleague walked into Balboa Bank and was able to open an account as a non-resident foreigner with remarkably little hassle. He had his bank reference letter and his passport, which is all you need in theory. However, when it comes to banking overseas, the theory can be one thing, while the reality is something else.

While I’ve given up on identifying a local bank in Panama that will consistently open accounts for foreigners, ones to try in addition to Balboa Bank (which recently merged with Banco Trasatlantico and seems to be interested in growing its client base)include Banco General (one of the biggest banks in Panama in terms of number of branches), and Global Bank (where some I know have recently reported having good luck opening accounts).

All banks in Panama offer some level of internet banking, but check the details of this before investing the time in getting an account open to make sure you can initiate wire transfers online if that’s something you’ll need to do. Balboa Bank offers that service online, as well as an English-language version of their interface. This is notable, as many banks in this country don’t have English versions of their websites.

Many of the general licensed banks offer consumer as well as private or investment banking. If you’re a private banking client (meaning you’ve deposited US$250,000 or more), then you’ll generally have an easier time opening an operating or consumer account with one of those banks.

Again, the international banks operating in Panama deal only with foreign clients. Further, the minimum account balance required to open an account with one of these banks is US$1 million or more.

One exception is Banca Privada d’Andorra (BPA), which has a branch with an international license in Panama. BPA will open an account for you with a minimum account balance of US$100,000 (although they prefer US$250,000). Their online banking interface is in Spanish, French, Catalan, and English. You can contact Yariela Montenegro at for more information about BPA’s services.

With the growing cost of the compliance required of any bank with American clients, many of the world’s international licensed banks are simply opting out of dealing with U.S. citizens, even those with the funds to open an account with US$1 million. Meantime, with everything going on in the global banking industry, banks are changing their policies and rules regularly. One bank that will open an account for a foreigner today may not next week and vice versa. We’ve watched this in Panama. Last year, for example, the executive committee of Unibank, a bank we’ve been recommending to readers since it opened in December 2010, decided that they would no longer take non-resident foreigners as clients except in their private banking division (US$250,000 minimum deposit). In December, they reversed that decision, but implemented a US$300 application fee for any foreigner wishing to open an account. Probably the back and forth and the new application fee are a reaction to the escalating cost of compliance when dealing with foreign clients.

Panama banks are generally solid, as the country’s Superintendent of Banking strictly monitors all bank activity. Currently, one bank is in “forced liquidation.” I’m not sure what that means, but banks don’t fail in Panama. When a problem does arise, the Superintendent takes action.

One specific occurrence a few years ago had to do with Stanford Bank in Antigua (the island, not the town in Guatemala). Stanford went bust because of malfeasance of the founder, and all related banks in different countries were affected. The Panama subsidiary of Stanford was closed, its assets frozen. The U.S. entities handling the case against Allen Stanford tried to seize the Panama assets, but the Panama Banking Superintendent wouldn’t allow that. After about 18 months, Stanford in Panama was sold to a group that reopened as Balboa Bank (still in operation today). All the Stanford Panama clients received the return of their funds.

It’s difficult to try to make a direct comparison of banking in Panama with that in Singapore. There are more banks and financial institutions in Singapore, which also offers more types of licenses. The number of banks in Panama has been relatively stable over the last 10 years, with new banks opening as other banks merge. Meantime, the volume of banking in Panama has increased, and I expect the number of banks to continue to increase as more international banks decide to open branches in this country.

Business And Taxation

One of the biggest advantages to Panama as a jurisdiction right now is that it is the best place in the world to run a business. Not a local business. I’d say that running a local business here in Panama would come with all the same challenges of running a local retail business anywhere in the world. In addition, though, the important thing to note about local trade in Panama is that much of it is restricted to foreigners. Most professions – doctors, lawyers, accountants, etc. – are restricted to Panamanian citizens, as are retail businesses. Most foreigners who want to be in business in the country focus on tourism-related opportunities or other service-related businesses…or restaurants.

If you’re looking for a place to launch or relocate an international business, however, you won’t find a better locale…

Except, perhaps, Singapore. I’d say these two countries are the top choices worldwide for where to base an Internet, consulting, or other laptop-based business. And, given the choice between Panama and Singapore, I’d choose Panama (as I did five years ago when my wife and I decided to relocate from Paris to Panama City to launch the Live and Invest Overseas business). Singapore is a far more expensive place to live and to do business. It’s also halfway around the world and many time zones away from your customer base if your customer base is based in North America.

One important reason Panama is as appealing as a doing-business choice as it is, is because it is a jurisdictional-based tax regime. That means any person or entity is taxed in Panama only if his, her, or its income is earned in Panama. Further, Panama doesn’t impose tax on interest income from deposits in Panamanian banks. Therefore, it’s possible, if you organize your life appropriately, for an individual to live in Panama free of any Panama income tax liability. Don’t earn any money in Panama, and you owe no tax in Panama. It’s as simple as that.

The easiest strategy for setting yourself up to be in Panama and in business without earning any income in Panama is to start a consulting or internet business based outside Panama. Create a non-Panamanian entity to house your non-Panamanian business, earn your income outside Panama (by consulting for a client in Costa Rica, for example), and have your clients pay your non-Panamanian company.

What you can’t do is set up a physical business in Panama with a non-Panamanian business providing the goods, and then have the non-Panamanian entity charge enough to the Panama company to keep it from showing any profit in Panama.

Panama has two rules that void that practice. One is simply an implied income tax on the gross revenue of a company if the company continually shows no profit. It’s essentially a minimum income tax charged at 1.168% of gross income for companies with gross revenue of US$1.5 million or more if the calculated tax on net income is less.

The other rule has to do with transfer pricing between affiliated companies. Panama passed a law last year specifically addressing this. A company with a Panama operation and a foreign subsidiary that provides products or services for local sales cannot charge above market prices for those products and services to the Panama entity in order to reduce the taxable income in Panama.

If you want to start a business in Panama for local trade, the tax rate is a flat 25% tax on net income. However, again, Panama places many restrictions on foreigners doing business locally.

To avoid this 25% tax on local business profits, you could consider basing your local business in either the free-trade zone in Colon or the Panama Pacifico “city” being developed at the former Howard Air Base outside Panama City. The free-trade zone in Colon is essentially a place to warehouse and modify goods to be shipped out of Panama. You can import and export goods to and from this zone with no tax implications, including no income tax. Any goods brought into Panama from this zone, however, are subject to import duties.

Panama Pacifico has been designated a tax-free zone for companies that qualify. The 13 categories of businesses that can operate here tax-exempt are:

 Distribution centers of multinational companies
 Back office operations
 Call centers
 Multimodal and logistics services
 High-tech product and process manufacturing
 Maintenance, repair, and overhauling of aircraft
 Sale of goods and services to the aviation industry
 Offshore services
 Film industry
 Data transmission, radio, TV, audio, and video
 Stock transfer between on-site companies
 Sale of goods and services to ships and their passengers
 Corporate headquarters

Another benefit of basing your business in Panama Pacifico is the opportunity that creates for you, as the business-owner/employer to be able to obtain work permits for foreign employees beyond the usual 90/10 rule. The 90/10 rule, which applies to all businesses operating in Panama outside Panama Pacifico, means that the business must employ nine Panamanians for every one non-Panamanian.

In recent history, again, the exception to this requirement that 90% of the employees for any business be Panamanian, has been to base yourself in Panama Pacifico. However, the new “Specific Country” residency permit means that this Panama Pacifico benefit isn’t as big a deal as it used to be. Now, any foreigner from any of the 47 countries included on the Specific Country visa list can obtain residency and a work permit, creating a chance for businesses to hire non-Panamanian labor without restriction. I believe this window of opportunity will continue only until President Martinelli is out of office. Martinelli created the new visa program through special Executive Order. The guy who follows him in office likely will repeal the order.

Unless the guy who follows Martinelli in office isn’t a guy at all but Mrs. Martinelli, as is lately being discussed.


Another important benefit of Panama as a jurisdiction includes the offshore services available here. In this way, too, Panama is very similar to Singapore. While Singapore has taken the offshore structures game to a next level, as it has been at this for much longer, Panama is working hard to catch up.

Panama offers corporations, trusts, and foundations. Again, Panama corporations pay no income tax in Panama if they don’t earn any money in Panama, making a Panama corporation a very appealing option for structuring business operations in other locations.

You can also use a Panama corporation to hold real estate in Panama or outside the country. Historically, this strategy provided important benefits to do with property and capital gains taxes. However, the rules for these things have changed recently, making this less of a no-brainer option. It can still make sense to hold Panama real estate in a Panama corporation, but not always.

Here’s how this used to work:

Once the Panama property was put into a Panama corporation, the “value” was locked into the public property registry. When the owner decided to sell, he sold not the property but the corporation holding the property. Ownership of the property didn’t change, and, therefore, the public registry value of the property didn’t change. As a result, the amount of property tax charged for the property didn’t change either. In other words, property values could increase, but property taxes (which are figured on property values) could be held constant this way.

Additionally, it used to be that, while Panama did charge capital gains tax on the transfer of property, it did not charge capital gains tax on the transfer of company shares, saving the seller 10% of the appreciation.

This changed in 2006. Now, sellers pay capital gains tax on both the transfer of property and the transfer of company shares.

Finally, Panama charges a 2% transfer fee on real estate. Selling the corporation rather than the property avoided that tax, as well.

Bottom line, today, with capital gains tax charged on the sale of shares and property values being reevaluated for the purposes of property tax, as I said, holding Panama real estate in a Panama corporation isn’t the no-brainer decision it was years ago. The cost of setting up a corporation runs from about US$1,000 to US$1,500, depending on the attorney. Maintaining the corporation runs US$530 a year without nominee directors, which should cost around another US$250.

On the other hand, using a Panama corporation to hold non-Panama real estate can be an excellent strategy, with estate planning and asset protection benefits. American readers should note, though, that a Panama corporation cannot be treated as a disregarded entity for tax purposes; they are treated like corporations. An American considering options for holding real estate in different countries should consider an LLC, a trust, or a foundation, which can be better choices depending on your circumstances overall.

Few people think of Panama as a trust jurisdiction; most look to the Cook Islands or perhaps Belize for this kind of structure. However, Panama does offer trusts (an odd thing for a civil law country).

Panama also offers foundations which is the civil law equivalent.

Foundations work very much like trusts and can be a good alternative to a trust depending on your needs. On the U.S. side, for tax purposes, a foundation can be treated like either a corporation or a trust. You want to make sure you set everything up so your foundation is treated like a trust. If you’re an American, have your Panama attorney work with a U.S. attorney who knows something about Panamanian foundations to be sure that the wording of the foundation documents is such that the entity will be treated as a trust by the IRS. Otherwise, you risk negative U.S. tax implications.

One other thing to keep in mind with a Panamanian foundation is that, while the name may suggest that it is a charitable organization, it is not. A Panamanian foundation is a tax-paying entity and can be liable for tax, both in Panama (if the foundation has any Panama based income) and in the United States (if the foundation has any income at all).

Pushing For First World Status

Panama’s President Martinelli has set an ambitious agenda. He has declared that he’s pushing Panama toward First World status. To that end, he’s taking all the revenues being thrown off by the Panama Canal (and then some) and investing them in infrastructure improvement projects across the country. You can’t drive more than a few blocks in any direction in Panama City without encountering some kind of construction—road expansion or repaving, digging for the new city metro, new building construction or old building renovation, electric and phone cables being moved underground, tunnels, bypasses, etc. Every main thoroughfare in the city is being improved in some way. The latest extension of the Cinta Costera, the new highway and pedestrian area that runs along the Bay of Panama, will take motorists around Casco Viejo and to the Bridge of the Americas, allowing drivers to avoid the current log jam trying to exit the city.

Around the country, roads are likewise being improved, expanded, and dug anew. Plus, new airports, new hospitals (including a big one in Santiago), new schools, and new shopping malls. The landscape of this country is being remade before our eyes.

The investment opportunities that all of this translates into are tremendous. Someday, people could be saying that Singapore is like Panama City.


Seize my IRA

Can the Government Seize my IRA?

One of the most common questions I get is, “can the government seize my IRA?”

With all of the uncertainty in the USA, and the growing hostility towards our government and its practices, many Americans are concerned about their retirement accounts. For most, their retirement account is their only liquid asset, the majority of their savings, and probably their largest holding, after their home. Just about every day I am asked, “Can the US seize my IRA account and, if so, what can I do to protect it?”

I hate to be an alarmist, so I usually try to calm the fears of these concerned citizens by saying the government can seize your IRA, but they probably won’t. This is the best I can offer because there are many examples of the US government seizing bank accounts, real estate and other properties, and yes – retirement accounts. The government can and does seize these accounts all the time and court action or oversight is not required. In fact, I would bet that the US government seizes several IRA accounts every day.

Let me explain how the government can seize your IRA: Most think their retirement accounts are protected…and some are, from civil creditors under your State’s applicable law. How much is protected depends on your State and the type of claim brought against you.

Level 1: There are Federal ERISA laws that protect some accounts, but not all.

Examples of ERISA-qualified pension and benefit plans include:

  •  401(K) accounts
  • pension and profit-sharing plans
  • group health and life insurance plans
  • dental and vision plans, and
  • HRAs, HSAs, and accidental death or disability benefits.

If your retirement account is not covered by ERISA, and you live in California, then a judgment creditor may be able to get to it.*

Level 2: Some of the most popular retirement accounts are not covered by ERISA.

Types of non-ERISA accounts that may be vulnerable include:

  • IRAs, Roth IRAs and SIMPLE IRAs
  • SEP and Keogh Plans
  • 403(b) plans for employees of a public school or university
  • plans that do not benefit employees, or “employer-only” plans, and
  • government or church plans

* Each State has its own laws. The example above is from California and may not apply to you.

The above applies only to civil creditors. None of these accounts are protected from the Federal government going after unpaid taxes or a spouse or child seeking back support with a domestic relation order in hand (called a “QDRO”).

While a spouse or child must go to court and get a judgment, the IRS needs no such approval. Any IRS agent assigned to collect from you can issue a letter to your bank and IRA custodian to seize 100% of your assets up to the amount they claim you owe. No court or other oversight is required and no formal process is required. The agent need only hit a few keys on his computer and your money is gone.

The same is true for those charged with a crime. The government can step in and seize all of your assets and hold them until the case has run its course. This includes real estate, cash, bank and retirement accounts, and automobiles. If you win your case, you will get these back…of course, you have no money to pay a decent attorney, but who cares?

The Feds can also seize your property if it is used by someone else in the commission of a crime. In 2012, Pot Shops were big business in California. Various counties and the State passed laws that allowed for medical marijuana use and sale with a prescription. Well, these dispensaries were usually rented from building owners by the operators. The Federal Government, not big fans of California’s tomfoolery, sent letters to the owners of these properties saying the Feds would seize their buildings, regardless of State or local law, if they continued to rent to these modern hippies. Building owners complied and the industry was largely shut down.

If you have read this far, you may be wondering why I am rambling on about tax cheats, criminals and potheads. It is because these are current examples of the Feds taking from its citizenry without judicial oversight or new laws being passed. How difficult would it be for the government to demand all retirement accounts be placed under Federal control, or at least force them to be held in a central depository? I guarantee it is easier than finding a legitimate way to solve America’s spending problem.

There are historic examples, and international instances, of government takings. It was not so long ago that the tiny island of Cyprus, on the insistence of the EU, took a significant portion of the money held in its banks to pay down its debts. Of course, we assume this will never happen in America…just as we assume our government was not spying on us and operates with only good intentions.

In the good ole’ USA, we can look back to 1933 when the Federal Government seized all gold and gold certificates by Presidential Order 2039. There was no need to pass a new law or special process to protect the citizenry. It was deemed to be in the best interest of the masses, so it was done.

This taking was sold to the public as being for their own good. The Feds claimed that “hoarding” of gold was stalling economic growth and making the depression worse. Why not hording of retirement assets by the “rich?”

As it turned out, it was just a money grab – prior to the taking, the price of gold was fixed at $20.67 per ounce. After the gold had been rounded up, the Fed raised the price to $35 an ounce, resulting in an immediate loss for everyone who had been forced to surrender their gold. The profit funded the Exchange Stabilization Fund established by the Gold Reserve Act in 1934.

So, I ask you this: When you look at the current state of the US, the economic situation of the average voter, and the unprecedented attack on the “rich,” do you think there would be a major revolt if the Government seized all retirement accounts over, say, $50,000 or $100,000?

You do have one option to protect your nest egg. You can move it in to an offshore IRA LLC with an account at an international bank outside of the reach of any type of US creditor. Such a structure is compliant with all current US rules and you will maintain the tax free (ROTH) or tax deferred (traditional IRA, etc.) nature of your retirement account.

The only caveat is that you need to be careful where in incorporate and where you bank. The US IRS can seize assets in Canada, France and the UK without notice and without legal proceedings. They can also levy any bank account at any institution with a branch in the United States.

For example, if you buy real estate in France, the IRS can seize it to satisfy back taxes. If you take your IRA to Panama, but make the mistake of depositing it in to HSBC, the IRS can levy that account by issuing a notice to HSBC New York. These are not hypothetical…I have personally handled cases of this type around the world and know these things to be true.

For detailed information on moving your IRA or other retirement account offshore, please see: Moving Your Retirement Account Offshore with a Self Directed IRA LLC. If you are concerned about protecting your retirement, I suggest you take action now. It is imperative that you have your affairs settled prior to the end of the year and the implementation of the Foreign Account Tax Compliance Act. For information on this law, see the Deloitte website.

So, can the government seize your IRA? The answer is yes. Now, what will you do to protect it?

trillion dollar coin

Trillion dollar coin: Evidence of a failing economic system

The president’s ability to print a trillion dollar coin or two to cover America’s debts is emerging as a surprisingly serious proposal and proves the absolute lunacy of our financial system. While such measures are unlikely, the fact that they are possible proves just how far we have come from the days when our currency was backed by gold.

As the result of a change in law from the mid 1990’s, the U.S. Treasury is allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases. It is thus possible for the U.S. Mint to produce a pair of trillion dollar coins from platinum.

If such trillion dollar coins were minted, the president could have them deposited at the Federal Reserve and place their value added to the Country’s books. Magically, the Treasury suddenly has an extra $2 trillion to pay off its obligations — without needing to issue new debt. The ceiling is no longer an issue.

Oh, how far has the country fallen from the days when its currency had real value? From the days when a dollar was worth a fixed amount of gold and the U.S. treasury had real assets backing its issuances. As a reminder, here is a bit of history:

On June 5, 1933, the United States abandoned the gold standard, a monetary system in which currency is backed by gold. Allegedly in response to the public hording gold during the Great Depression of the 1930’s, Congress nullified the right of creditors to demand payment in gold. The United States had been on a gold standard since 1879, except for an embargo on gold exports during World War I, and has been printing currency at will ever since.

Soon after taking office in March 1933, Roosevelt declared a nationwide bank moratorium in order to prevent a run on the banks by consumers lacking confidence in the economy. He also forbade banks to pay out gold or to export it. Then, on April 5, 1933, Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money. It required all persons to deliver all gold coin, gold bullion and gold certificates owned by them to the Federal Reserve by May 1 for the set price of $20.67 per ounce. By May 10, the government had taken in $300 million of gold coin and $470 million of gold certificates. In 1934, the government price of gold was increased to $35 per ounce, effectively increasing the gold on the Federal Reserve’s balance sheets by 69 percent. This increase in assets allowed the Federal Reserve to further inflate the money supply.

Current Price: The current price of gold is $1,659 per oz., which represents an 88% increase over the last 5 years.

The government held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard. In 1974, President Gerald Ford signed legislation that permitted Americans again to own gold bullion.

Now, with the possibility of a worthless dollar, and an economy in shambles, what can you do about it?

Unfortunately as individuals we have little control over the currency value and can’t print our own trillion dollar coin, but we can protect our ass(ets).

  • Diversify investments away from those tied to US currency or economy
  • Buy gold and related assets
  • Diversify out of the USD and US banks
  • Find ways to earn in foreign currencies, such as starting an international business
  • Carefully monitor your buying power and buy in bulk items that will not perish but seem to be going up in price (relatively speaking as your dollar goes down in value)
  • Spread your savings so not all in one bank, preferably with at least one foreign account
  • Purchase real estate in those international markets with strong growth prospects, which are not dependent on the Untied States

Hiding Money in the U. S. of A.

Want to hide money from the tax man? Come to America – Hiding Money is big big business.

“…the U.S. system welcomes foreigners with arms wide open and eyes wide shut.”

A few days ago, I met with the president of a large international investment bank in Panama. We’ve been friends for a number of years and went to one of my favorite places for dinner, Chalet Suizo – 1985, in El Cangrejo. After a few drinks, we got to talking about money laundering and the U.S.’s attempts to “stop the evil and protect us from terrorists.”

My friend’s view was that the vast majority of money laundering is done in the United States by American banks. He believes that 80% to 90% of the money hidden from international tax authorities is invested in the United States, and that there is nothing these foreign governments can do to get to it. Most of this money is from Europe, but a great deal comes from Mexico, Venezuela, Colombia, and other parts of Latin America.

Every international banker I’ve ever met will agree with this assessment, as do a number of scholarly studies. In fact, some estimate the amount of money hidden in the U.S. in the billions of dollars. It represents a very significant portion of fund held in U.S. dollars, and the liquid capital of many prominent banks.

While the Department of Justice is aggressively going after its citizens for not paying up, the government is making it easier to bring in untaxed money and protecting foreigners from discovery. While it is near impossible for a U.S. citizen to get an account abroad, anyone can open an account in the United States with no questions asked.

Don’t believe me? Here is how the system really works:

Let’s say you, an upstanding U.S. citizen, want to open an account in Panama. First, you might not be able to find an institution willing to take your money…about 90% of the banks are closed to Americans. Second, if you manage to talk your way past the front door, you will have a battle on your hands to get an account approved. You will be required to travel to Panama for an interview where you must:

1. explain why you need the account,

2. prove where the money came from (source of your savings),

3. where the money that will go through the account will come from (prove your business model),

4. provide two forms of ID,

5. provide two professional reference letters (these will be verified),

6. provide statements and a letter from your U.S. bank saying how long you’ve been a client, that your account is in good standing, and how much money you usually have at the bank,

7. pass a WorldCheck screening,

8. undergo a due diligence investigation by the bank’s compliance department that will take weeks, and

9. if this is a corporate account, the above is required for all shareholders and directors, not just those who are signors on the account.

If you manage to get an account open and operating, each time you write a check or send a wire, the bank will want to know why you are sending the money and to whom. Recipients of any significant wire transfers will also need to go through a WorldCheck screening before the wire will be initiated.

And these rules apply to all foreigners, not just Americans. Are you a Colombian or Venezuelan working in Panama? You must go through all the same due diligence. In fact, I know of only one bank in Panama that will accept smaller accounts from Colombians, compared to 3 or 4 banks that accept Americans.

Want to open an account in the U.S. with your Panama corporation? Good luck! While my well-healed clients (those with $250,000+ at a bank with long standing relationships with a private banker) have been able to open these accounts, average Americans are being told to pound sand. I’ve even seen some Americans with foreign entities at Wells Fargo and Bank of America kicked to the curb after the account was opened and compliance had time to review the file.

Now, let’s say you are a Mexican citizen and you want to open an account in the United States. Just walk in to any branch with your “passport” or other ID and you’ll have an account within 15 minutes. There are no questions asked, no references required, and no background checks. In fact, the bank does not even bother to verify the passport or ID document in any way. The only due diligence the bank will undertake is to run the name on the account through their database to see if you’ve bounced a check or had problems under that name at other banks.

Well, what if you are an undocumented worker or illegal immigrant in the U.S. and want an account? No problem. Just show up with some sort of ID and get an account. No verification required. This is not a secret…institutions like Union Bank and Bank of America have marketed these services to undocumented workers and let them know in advance that no questions will be asked.

Note: Back in 2007, bank accounts for illegals were a hot political topic and got a lot of press. For an example, see: These days, they are common practice and no one cares.

What’s the catch? If you have a checking or savings account and are not a U.S. citizen, or can’t be bothered to fake a Social Security card, you won’t earn interest on your account. Yes, the bank makes their money…they just don’t give you a cut.

Now, here’s the story that really got me thinking and initiated this article:

A friend in Panama called me this morning and told me about opening a corporate account at a large bank in the United States by email with no questions asked. She is 28 years old, Panamanian with no ties to the U.S., and has had a small savings account at this bank in America for about 6 months. She sent an email to her representative basically saying:

“Hey, I have a small CD and savings account at your bank and I want a corporate account for my new business. I will form a corporation in Panama and want to know what is required to open a checking account at your bank.”

The banker wrote back (I summarize): “Dear Senorita, We will be happy to take your money and we don’t need nothing. Just let me know the name of the company you will form and I’ll will have your account ready today. We don’t want to know anything about the shareholders, source of funds, or business, and we don’t need a copy of the company documents. By the way, we have a special on a combo checking, savings, and corporate CD, which will save you money on fees…I suggest we open all 3 accounts today.”

After battling for so many clients to open accounts abroad, stories like this really hurt. Basically, the bank was willing to open the account under any corporate name, with no due diligence or hassle. She did not even need to form the corporation…just provide a name…any name…and the account will be ready.

While the IRS is locking up Americans with unreported income, the U.S. system welcomes foreigners with arms wide open and eyes wide shut. My friend has no intentions of doing anything illegal, but her experience proves how easy it would be for non-nationals to hide and launder funds in the U. S. of A.

Keep in mind that it is the United States who is pushing for “compliance” worldwide and forcing banks in countries like Panama to put up so many barriers to new clients. This means that citizens have very few options abroad, which may force them to return their funds to U.S. banks. At the same time, it pushes foreign money out of smaller countries and in to the American system (path of least resistance), where accounts are easy and no one gives a damn where the money came from.

Essentially, America gets its cake ($5 billion+ and counting in taxes and penalties raised on the backs of Americans with international accounts) and to eat it too (billions in the banking system and in U.S. dollars from undisclosed and unreported sources).

Swiss Banking

Swiss Banking is Dead

Let’s face reality. Swiss banking is dead. It’s a brisk day here in Geneva with highs in the mid 40’s and a strong breeze coming off the lake. I spent the day ringing in the New Year with a group of investment advisers and bankers on Rue de Rhone, all of whom are typically Swiss about what’s happening to their country.

With Swiss banking privacy in the rear view mirror, banks are struggling to find their place. In days gone by, they were able to charge high fees in exchange for their integrity and a history of defending their client’s rights. Now, after rolling over for the Americans, Swiss banking is in a tailspin.

But the Swiss are pressing on. To a man, their attitude is that, while this is a permanent contraction, business will go on in one form or another. Those who can adapt to a new world order will succeed, and those who can’t will be left behind. Life changes and goes on.

Switzerland’s biggest banks, UBS and Credit Suisse, have shed 7,000 jobs and the downsizing is expected to continue. In addition to losing its allure, an overpriced Swiss Franc, a weak Euro, and other economic woes have hit this small country of nearly 8 million hard.

And those who still have their jobs are looking at significant pay and bonus cuts, as bank profits have fallen sharply. Because of a significant decrease in international business, combined with higher regulatory and other costs, salaries and all types of compensation are lower. Lower margin as forced to compete on price and not on privacy and protection.

In addition to lost respect and business affecting all Swiss banks, UBS has been singled out and smashed time and time again by U.S. authorities. In 2009, UBS paid the U.S. tax man $790 million and the U.S. SEC $200 million to avoid criminal prosecution, and gave up info on 17,000 accounts, which precipitated the current mess. Then, in May of 2011, UBS came up with another $160 million for the SEC. With cash strapped agencies smelling blood in the water, regulators are currently suing UBS for $1 billion in damages related to the U.S. mortgage crisis.

Not wanting to kill the cash cow, the Justice Department has given UBS conditional immunity on the LIBOR rate fixing case they are planning. Conditional immunity indicates that UBS confessed and gave evidence against others in the pending investigation.

A corporation can avoid criminal conviction and fines for antitrust crimes “by being the first to confess participation in a criminal antitrust violation, fully cooperating with the division, and meeting other specified conditions,” according to the Justice Department.

While the Swiss may be stoic, I believe this new world order will continue for the foreseeable future and that Switzerland as a world financial center is done. When banking secrecy was torn asunder, Switzerland lost its competitive advantage. Why hold money in Switzerland over Luxembourg, Singapore, or smaller and more competitive nations such as Andorra? The Americans have succeeded in doing what even World War II could not…turn Switzerland in to just another pretty tourist destination.

The IRS has no Problem Using Weapons of Mass Destruction

IRS Attacks Forcing High Net Worth Americans out of the Country

The number of American expatriations is at a record high as tens of thousands of Americans a year are moving abroad in search of better lives. A root cause is how the U.S. government is treating its citizens these days.

At least 1,788 Americans officially threw away their U.S. citizenship in 2011, exceeding the totals from 2007, 2008, and 2009 combined. The Internal Revenue Service has been keeping a tally of U.S. citizens driven to renouncing that title since only 1998, but last year’s number has officially raised the bar when it comes to calling America quits.

Out of the 34 countries that belong to the Organization for Economic Cooperation and Development, the United States is the only nation that taxes its citizens no matter where they reside on Earth. As long as a person maintains citizen status, they are expected to send the United States government pennies on every dollar earned no matter where they live. The good old U.S. of A is also one of the only countries in the world that locks up its citizens in boxes for failing to pay up.

As the U.S. government works ever-more-aggressively to find ways to fund the deficit and as their worldwide bullying continues to create a backlash for us Americans trying to diversify offshore, more and more of us Americans who understand the importance of diversifying offshore are considering the idea of saying thanks, but, no, thanks, Uncle Sam. Here’s your passport back.

Just about every call I get now related to expatriation is from someone either battling the IRS or afraid of winding up in a clash with the Government.

Why are so many citizens concerned? I believe it is because the tone of the Internal Revenue Service has changed dramatically in the last five years.

Historically, if an average American failed to report his income accurately and completely it was a civil or a financial issue…he or she had to pay the taxes and penalties. Increasingly, the IRS is turning those sections of the tax code enacted to go after drug dealers and mafia kingpins (think Al Capone) on ordinary citizens, all in the name of increasing revenues.

These weapons of mass destruction (which, in this case, the U.S. government has no trouble finding) put regular people in jail for years for failing to file a form or to report income. They are being used not only to go after multi-millionaires and billionaires with huge accounts offshore, but everyday hard-working Americans, as well.

Here are three examples from my clients. There are hundreds of similar cases being argued throughout the United States right now.

Example #1 – Offshore Account

I know a single father of three who makes about US$80,000 a year as a self-employed consultant. Eight years ago, he moved some money offshore, to diversify and for asset protection. He never filed the necessary IRS forms, and he failed to report the account on his tax return.

Unfortunately for him, the account was at UBS Switzerland. He was reported to the IRS, which has decided to prosecute him.

Here is the rub: He did not have any unreported or untaxed income…which is to say, the account did not earn any interest, and the guy would not have had to pay any additional U.S. tax had he reported it.

That’s irrelevant now. In settlement negotiations, the man is facing up to one year in jail and a fine of US$540,000.
He has little money left and will never be able to pay the fine.
What is the point of the prosecution? The IRS gets to issue a press release showing a conviction in this city. This press release will forget to mention that there is no tax loss in the case, but it may induce many others to come forward…thereby increasing revenues on the back of an everyday citizen who made a mistake.

Example #2 – Cash Transactions

A retired U.S. citizen I know, living in California, age 60, is concerned about a major devaluation of the U.S. dollar. He decided a while ago that he wanted to purchase gold. He owns a condo with some equity and has a few hundred thousand dollars in retirement money.

As a regular guy, he can´t afford to buy large amounts of gold bullion, so he purchased gold coins from a local dealer. He paid cash for these coins so the dealer would not have to wait for a check to clear before handing over the merchandise. He has never sold any of his coins, thus there is no tax issue.

What did he do wrong? He took cash out of his account once or twice a week, always less than US $10,000 at a time, to make the gold purchases. To the IRS, this can qualify as “Structuring,” which is a crime.

The man’s bank sent two suspicious transaction reports to the IRS and closed his account. He had been a client of this bank for more than 30 years, yet the bank made no effort to warn him in advance of the reports they made to the IRS or to offer any assistance. They just turned him in.

As a result, the man is looking at a fine of up to US$100,000 and possible criminal charges that could incarcerate him for up to five years. Add to this a minimum of US$100,000 in potential legal fees, and the reality for this guy is that he and his family could be wiped out. Again, this is all the result of an innocent mistake.
Example #3 – Dual Citizen

Another client is a 55-year-old engineer who has been working at the same job for 20 years. He is a dual citizen of the United States and the United Kingdom. When he moved to the States, he rented out his U.K. home. Ever since, he has deposited this rental income in a U.K. account.

The man has filed tax returns in the U.K. reporting the rental property, but he did not report it, or the U.K. account, to the IRS. Had he reported the property and the related rental income all along, it would not have made any tax difference in the United States.
In fact, reporting the rental could have reduced his U.S. tax, thanks to the depreciation he could have claimed.

In 2009, this man learned of the requirement to file an FBAR form and entered the IRS Voluntary Disclosure Program. As a result, this story has a happier ending than the others. This guy will not face criminal charges.
He will, though, pay a fine of approximately US$22,000.

Cases like these and the hundreds of others currently being argued have changed the way that tax attorneys deal with clients. While we once would say, ‘Come clean, be honest, and let’s get through this,’ now we advise, ‘Be afraid…be very afraid.’

It is this culture of fear that is pushing many Americans to look around the world for places where they might live better, freer, and less fearfully.

I’ll note that these changes are not the result of one political party or another. They represent a permanent change in perspective by the U.S. government in general, in how both parties view their citizens. Changes to the tax laws, and in the ways the laws are interpreted, began under George Bush II with the Patriot Act and continue under Barack Obama with the Bank Secrecy Act and the HIRE Act.

In the face of a troubled U.S. economy and out-of-control spending, the U.S. government desperately needs to expand its tax revenues, and the IRS has decided that it can raise more money with fear and violence than with honey.

It’s a situation that qualifies as dire, and sensible Americans are looking to escape it as quickly as they can.

IRA Gold

$7 Million in Gold but no Estate Plan

If you have ever attended an offshore conference, you have heard the story of two kings from Mr. Joel Nagel: Elvis Presley, whose estate was decimated by lawyers and the IRS, and Sam Walton, who left nothing but an old pickup for the vultures.

Today I will tell you about Walter Samaszko Jr. of Carson City, Nevada. At the age of 69, Mr. Samaszko passed away in late June of this year. He left over $7 million in gold bars and coins, $165,000 in stocks and bonds, and $12,000 in cash hidden throughout his home, but only $200 in a checking account.

Mr. Samaszko lived in the same small home since the 1960s, where he had taken care of his mother until her death in 1992. He had no close relatives, and, apparently, no close friends (it was about 30 days before his body was discovered). He left no will and no trust. Reports indicate that his estate will go to his first cousin, Arlene Magdanz, who lives in San Rafael, California.

The gold coins and bars had been minted as early as the 1840s and were from a number of countries, including Mexico, England, Austria and South Africa. The estimated value of $7 million is based on the gold weigh alone. It is likely that the collectors’ value will be much higher.

Mr. Samaszko was obviously a hardworking and intelligent man to have amassed such wealth. He also took great precautions against government interference and economic collapse. So, why no estate plan? Why work so hard simply to leave a large portion of the money to a government he clearly feared?

If we assume that the total value of Mr. Samaszko’s estate, including the collectors’ value of coins, is $8 million, here is the government’s cut:

1. Mr. Samaszko is “lucky” to have died in 2012, when the Federal estate tax only applies on amounts over $5 million. A quick calculation estimates Federal estate tax due of $1,008,000. Had he passed away in 2009, Federal estate tax would have been over $2 million.

2. Nevada does not have an estate tax and California, where his heir lives, has no inheritance tax. Had Mr. Samaszko lived in Washington State, his State estate tax would have been about $1 million.

3. There are a number of fees associated with probate (a legal process required when one dies without a living trust), which includes appraisal costs, executor’s fees, filing fees for the court, surety bond fees, legal fees and accountancy fees. Nevada has adopted a statutory fee schedule, but a judge may approve any amount he deems to be reasonable. Based on the particulars of this case, including the fact that there appears to be only one heir and no contest to probate, one might guestimate the estate fees at 4% to 10%, or $320,000 to $800,000.

If additional heirs are located, legal fees are likely to skyrocket.

With planning, Mr. Samaszko could have reduced or eliminated the bulk of these costs. The most basic tool would be a U.S. living trust. This would have controlled the distribution of the estate, may have included charitable contributions, and would have eliminated probate fees of $320,000 to $800,000. A do-it-yourself book costs about $30, and a lawyer may charge a few thousand dollars for a custom plan.

In addition, he could have diversified out of the United States and in to physical or certificate gold and stock investments around the world. The use of an offshore trust, Panama foundation, or offshore company would have maximized his protection and access to international markets. While it is advisable to have some assets at home and within reach, safety and prudence dictate an international plan to protect you and your assets.

There are a number of other U.S. estate planning tools available at little or no cost, but may be of great benefit if they are needed.

Many are available for free on the internet. These are:

1. Durable Power of Attorney: Allows you to designate to access and control your financial assets. It can take effect immediately, or it can “spring” into effect if an event you define triggers its operation, such as incapacitation or unavailability.

2. Prenuptial Agreement: This keeps your property separate from your spouses, and is especially important in second marriages where you may want to leave assets to your children.

3. Health Care Proxy: Also called a durable power of attorney for health care, this document identifies the person you’d like to make medical decisions on your behalf if you become unable to make them yourself.

4. Living Will: An advance health care directive, also known as living will, personal directive, advance directive, or advance decision, is a set of written instructions that a person gives that specify what actions should be taken for their health if they are no longer able to make decisions due to illness or incapacity. The most common directive is when a person wishes no extreme measures or life support equipment be used in their care.

5. HIPAA Release: A Health Insurance Portability and Accountability Act, or HIPAA, release allows medical professionals to discuss your medical condition with your personal representative. Without this form, the hospital may not be able to discuss your care with your representative.

6. Life Insurance: Life insurance allows you to take care of those who depend on you. If you do not have financial responsibilities, you do not need life insurance.

7. Business Succession Plan: If you are self-employed or own a business, and you want the business to continue after retirement or death, a succession plan must be in place. If your children will take over operations, a relatively simple agreement can be drafted. If you will sell some or all of the business, or there are multiple partners, a more robust strategy will be required.

There are two certainties in life: death and taxes. A detailed estate plan is the only guaranteed way to minimize death taxes and can include a number of tools that diversify your investments, maximize privacy, and plant your financial flag in a favorable jurisdiction.

An attorney with Premier Offshore Investor will be happy to discuss your options. Contact us for a confidential consultation at (619) 483-1708 or email with any questions.

Update: December 19, 2012

The gold coins were eventually valued at $7.5M and the entire estate went to a distant relative via judicial decree. For additional information, checkout CBS News.

Offshore business tax reporting

IRS Snitch Gets Rich

IRS Snitch Gets Rich – UBS Whistleblower Receives $104 Million.

How much are 40 months of your life, and your dignity, worth? $104 million (or about $4,600 for each hour spent in prison) seems a good answer.

As you may have heard, The Internal Revenue Service awarded tax whistleblower and former UBS banker Bradley Birkenfeld $104 million for turning in his clients and giving insider information on the banks operations. This ultimately allowed the IRS to shatter the veil on Swiss bank secrecy, get paid a bribe or blackmail (how else can you describe paying money to avoid criminal prosecution) of $780 million from UBS, imprison hundreds of Americans, obtain records on 4,000 accounts, and raise $5 billion and counting in taxes and penalties.

Prosecutors have said they would have had no case against UBS without Mr. Birkenfeld, but they still sought one charge of conspiracy and prison time for this Good Samaritan. Mr. Birkenfeld was sentenced to 40 months and will probably do 85% of that sentence in one form or another. After serving 30 months, he was recently transferred to a halfway house in New Hampshire.

Clearly, Mr. Birkenfeld has seen the error of his ways and is on board with the IRS. He recently released the following statement through his attorneys: “The IRS today sent 104 million messages to whistleblowers around the world — that there is now a safe and secure way to report tax fraud and that the IRS is now paying awards,” and “The IRS also sent 104 million messages to banks around the world — stop enabling tax cheats or you will get caught.”

Well, before you decide to turn in your ex-spouse, business partner, or employer, you might like to know that the IRS has a history of screwing the whistleblower and denying claims for compensation.

In 2006, the IRS started a whistle-blower campaign which offers informants rewards of 15% for recoveries of less than $2m and 30% for recoveries in excess of $2m. However, the vast majority of claims submitted to the IRS go unanswered.

Of the cases that the IRS investigates, the usual time to completion is 5 years, you get a percentage of the amount recovered and not the amount assessed, and IRS records indicate they pay out an average of 4% of the money recovered, rather than 15 and 30%.

How can the IRS payout 4% on average when the regulation says 15 to 30%? Easy…they deny the majority of claims even after moneys are recovered. The IRS issues a letter saying they would have collected the money without the tip…that the tax cheat would have been found out through their normal audit procedures, and thus no money is due the whistleblower.

There are no appeals or legal remedies for the whistleblower. He or she is at the mercy of the Service.

While, I’m sure that there will be a flood of new cases coming in to the IRS Informant Program in the coming weeks, I’m just as certain that very few of these snitches will ever see a dollar for their efforts.

For additional information on the IRS program, and to tattletale on your friends and family in pursuit of a pay day, click here for the IRS website.

Attack on the Dollar

IRS Going After Cash Transactions

U.S. Goes After Cash Transactions

The New York Times recently reported that Federal and state authorities are investigating a handful of major American banks for failing to monitor cash transactions in and out of their branches. The government claims that this may have enabled drug dealers and terrorists to launder tainted money, according to officials who spoke on the condition of anonymity.

It is alleged that the primary target of the investigation is the embattled J.P. Morgan Chase. Who, fresh off a scandalous trading loss of $5.8bn, is in no position to stand up to another political firestorm. It is also suggested that the government is looking in to several other big name banks, including Bank of America.

Before I get in to this story, let’s define our terms:

A cash transaction is one where someone withdraws or deposits paper money. This does not include checks or wire transfers. A bank is required to report any cash transaction in excess of $10,000, and any transaction the teller deems to be “suspicious.”

A suspicious transaction is usually a group of transactions that are structured to avoid the reporting requirements. For example, you go in to the bank each day and deposit $9,500, or in to two branches with $6,000 each time. If the teller (or computer) notices, then a Suspicious Transaction Report will be sent to the IRS.

Tellers are also trained to spot signs of generally suspicious behavior. For example, if a customer asks about the reporting requirements or anything related to taxation or the IRS that is suspicious. If the customer seems nervous or otherwise sets of warning bells, a report will be generated.

With that said, let’s get back to the story:

The Comptroller of the Currency, as well as prosecutors from the Justice Department and the Manhattan district attorney’s office are all gearing up to go after these banks in order to protect us from drug dealers and terrorists…YEH! We should all stand up and applaud our government’s diligence!

Well, wait a minute. Who is the actual target here? Is al-Qaeda really transacting giant piles of cash and fooling tellers and computers in to not reporting? Are the internal bank compliance systems, on which these companies have spent millions of dollars, fooled so easily?

As someone who has represented both clients and family members caught up in these currency transaction reports and suspicious transaction reports, I can tell you that banks take them very seriously. I can also tell you that the teller’s credo is report first and ask questions later…CYA all the way.

So, why the sudden focus on cash transactions? In my opinion, it is a new battlefield being tested against average U.S. citizens, with nary a terrorist in sight. Are self-employed persons cashing their checks rather than depositing them to avoid paying taxes? Are they structuring their transactions to avoid a currency report?

With international tax evasion, the IRS has the Foreign Bank Account Form and related penalties. With domestic tax evasion, the government as the Currency Transaction Report to target anyone who lands in their crosshairs. Much like the FBAR, attempting to avoid the filing of a CTR is punishable by up to five years in prison.

As you may recall, it was just six years ago that the Patriot Act came in law under George Bush. The reasoning behind this act, as well as those to follow (HIRE, FATCA, et al.), was to put a stop to terrorist money laundering. Well, the Patriot Act led to the IRS attack on the Swiss bank UBS, $5 billion dollars and counting in new tax and penalty revenues, and the prosecution and imprisonment of hundreds of U.S. citizens…without a terrorist to be found
Now, as the government increases pressure on banks to report anyone transacting in cash, or acting suspiciously, and turns bank tellers in to unpaid IRS Criminal Investigation Agents, a new battle is brewing between the IRS and the average American self-employed person who may be fudging on his or her taxes.

When this is over, two things will come of it: 1) the IRS will persecute a few to collect from many and 2) the number of anonymous cash transactions will be reduced significantly, with business being done by credit card, check or wire, thereby traceable and controllable.

Debtors Prisons in the U.S.?

Debtors’ Prisons are back in the U.S. of A.

As States search for ways to increase revenues, they have been using their weapon of mass destruction – their prison system – to bludgeon those unable to pay fines and tickets in to coughing up some cash. And it’s not limited to government agencies. Owe money on a medical bill, payday loan, or to a collection agency? You may well find yourself in jail.

While it sounds like something out of a Dickens novel that could never happen in the America which Obama claims is a shining beacon to the world, debtors prisons are back in a big way. More than a third of all States now allow borrowers who don’t pay their bills to be jailed, even when debtors’ prisons have been explicitly banned by State constitutions and Federal law. A report by the American Civil Liberties Union found that people were imprisoned even when the cost of doing so exceeded the amount of debt they owed. Stories of surprise arrests for unpaid debt have been reported in Indiana, Missouri, Tennessee and Washington.

Want a few examples? According to NPR, Robin Sanders of Illinois was stopped for having a loud muffler. But, rather than a ticket or warning, she was taken to jail for failure to appear in court. What was the charge? Failure to pay a $730 medical bill.

According to the Wall Street Journal, Sean Matthews, a homeless New Orleans construction worker, was incarcerated for five months for a $498 debt. While it cost the State $3,000 to hold and feed him, the creditor eventually got his money.

Following the lead of civil creditors, cities and towns are getting in on the act. The New York Times reported on the story of Gina Ray, who was jailed three times in Alabama for her inability to pay a $179 speeding ticket. By the time it was all said and done, the town and the collection agency had levied fines totaling $3,170 and she spent 40 days in jail. Adding insult to injury, a fee was charged by the government for each day she was incarcerated.

Then there is the case of the Illinois breast cancer survivor Lisa Lindsay. “She got a $280 medical bill in error and was told she didn’t have to pay it,” The Associated Press reports. “But the bill was turned over to a collection agency, and eventually State troopers showed up at her home and took her to jail in handcuffs.”
OK, hold on, you might say. This sounds ridiculous. If you fail to show up for civil court, the creditor simply gets a default judgment, right? Well, creditors have figured out a loophole that allows them to put you in jail until you pay-up.

Here’s how clever payday lenders work the system in Missouri — where, it should be noted, jailing someone for unpaid debts is illegal under the state constitution.

First, explains St. Louis Post-Dispatch, the creditor gets a judgment in civil court that a debtor hasn’t paid a sum that he owes. Then, the debtor is summoned to court for an “examination,” which is a review of their financial assets.

If the debtor fails to show up for the examination — as often happens in such cases — the creditor can ask for a “body attachment” — essentially, a warrant for the debtor’s arrest. At that point, the police can haul the debtor in and jail them until there’s a court hearing, or until they pay the bond. No coincidence, the bond is usually set at the amount of the original debt.

As the Dispatch notes:

“Debtors are sometimes summoned to court repeatedly, increasing chances that they’ll miss a date and be arrested. Critics note that judges often set the debtor’s release bond at the amount of the debt and turn the bond money over to the creditor — essentially turning publicly financed police and court employees into private debt collectors for predatory lenders.”

So, borrowers aren’t arrested for nonpayment, but rather for failing to respond to court hearings, pay legal fines, or otherwise showing “contempt of court” in connection with a creditor lawsuit…but the result is the same. Borrowers are in prison, sometimes for long periods, because they were unable to pay a debt.

Debtors’ prisons have a long and violent history in America, going back at least to the 1750s, and were abolished by Federal law and most States in 1883. They were the source of Shay’s Rebellion, where debtors’ prisons were emptied and a full scale revolt ensued in Massachusetts from 1786 to 1787. The uprising was eventually crushed after the State raised a private army, with creditors’ rights and debtors’ prisons being restored.

History and the constitution aside, there is big money to be made.For example, the State of Alabama charges a 30 percent collection fee for assisting creditors, while Florida allows private debt collectors to add a 40 percent surcharge on the original debt. “Many states are imposing new and often onerous ‘user fees’ on individuals with criminal convictions,” the authors of the Brennan Center report wrote. “Yet far from being easy money, these fees impose severe — and often hidden — costs on communities, taxpayers, and indigent people convicted of crimes. They create new paths to prison for those unable to pay their debts and make it harder to find employment and housing as well to meet child-support obligations.”

According to the ACLU: “The sad truth is that debtors’ prisons are flourishing today, more than two decades after the Supreme Court prohibited imprisoning those who are too poor to pay their legal debts. In this era of shrinking budgets, state and local governments have turned aggressively to using the threat and reality of imprisonment to squeeze revenue out of the poorest defendants who appear in their courts.”

It is outrageous to think that, in our enlightened society, which is a shining example of freedom and justice to the world, that creditors are manipulating the courts to extract whatever they can from people who can least afford to pay.

It is even more disheartening that courts are enabling and encouraging this practice in an attempt to prop up their fledgling budgets.

US Leads the World in Only 3 Categories…

What Makes America the Greatest Country in the World?

With record numbers of people leaving the United States, I wanted to write an article in defense of my country of birth. I spent hours researching the benefits of retaining my U.S. passport, and tried to come up with examples of where we lead the world in some important economic or beneficial category. Well, I came up with nothing…other than it is time to launch the lifeboat!

Since I spent all this time in hopes of authoring a defense, the least I can do is tell you what I found. Here goes:

The Expatriation Phenomenon

First, we need to define abandoning ship, more formally referred to as expatriation. Some sources refer to an expatriate (in abbreviated form, Expat) as someone, who moves away from his or her home country, either temporarily or permanently, to live and/or work in a foreign nation. This is the more common usage and includes approximately 5.2 million Americans.

The lawyerly definition of Expat is someone who gives up citizenship in their home country, effectively severing all ties with that country. As the United States is the only industrialized country to tax its citizens on income earned while living and working abroad, even when taxed by their countries of residence, it makes sense that the U.S. leads the world in people giving up their citizenship…in fact, legal expatriation is almost unheard of in other nations (Ok, so I found one area where the U.S. leads the world).

According to the WSJ, 1,800 U.S. citizens gave up their passports in 2011, a six fold increase from 2008. While 1,800 is a relatively small number, it is the increase which is eye-catching. When you consider the number of applications in the pipeline, and balance that against the very steep obstacles the U.S. IRS has put in place to prevent flight (such as an enormous exit tax), the growth of expatriation is staggering.

So, why are so many people shredding their U.S. passports? Let’s look at a few factors you and I might use to decide where to live.

Quality of Life

Based on television shows and hype, I would expect the U.S. to lead the world in quality of life, but this is far from true. America is 13th in the quality of life index published by the Economist Intelligence Unit. This survey quantifies healthiness, family life, community life, material wellbeing, political stability and security, climate and geography, job security, political freedom, and gender equality. It is the generally accepted standard for measuring quality of life around the world.

However, as someone who writes and works in the international arena, I do not believe this index is highly correlated to expatriation. I do not believe average citizens are moving from the U.S. to countries with higher quality of life scores for a simple reason: the higher a country ranks in the index, the higher the cost of living.

Countries with higher costs of living and a higher “quality of life” include: Switzerland, Sweden, Italy, Spain, Singapore, etc. But, in my experience, average Americans move to countries with lower costs of living, where their dollar, savings, and retirement, go farther. For example, countries such as Panama, Chile, Costa Rica, Philippines, Thailand, and Nicaragua, are all ranked significantly lower than the United States, but someone bringing dollars in to these economies can create an exceptional life for themselves on a budget.

While the quality of life index might accurately measure the experiences of a large population, it has little to do with an individual’s life choice.

At Least We’re Healthy

We all know that healthcare in the United States leads the world in cost. I won’t even bother to document this fact, as it has been beaten to death in the Obamanation healthcare debates. This must equate to high rankings in areas such as life expectancy and infant mortality…right? Sorry, wrong again. The United States ranks 49th in life expectancy and an outrageous 178th in infant mortality.

The United States currently ranks 49th in the world in overall life expectancy, according to a study published in the academic journal Health Affairs, slipping dramatically during the last decade. This study was published in 2010, and compares to 1999, where the U.S. ranked 24th in the same category.

The report found the prime culprit of the plunge to be America’s deteriorating health care system, marred by ever-rising costs and growing numbers of uninsured and under-insured individuals.

Noting that the United States spends over twice as much per capita on health care than other industrialized nations, the report states: “The observation that Americans are spending relatively more on health care but living relatively shorter, less healthy lives has led some critics to allege that the U.S. health care system is ‘uniquely inefficient.’”

The most shocking statistic I uncovered was the infant mortality rate. How can the U.S. rank 139th in this most basic health statistic? I did not believe my eyes, and thought it was internet junk science, until I saw this fact reported in a number of respected publications.

Infant mortality is extremely high in States such as Mississippi and Alabama, at about 10 deaths per 1,000, and lowest in States like Washington and Massachusetts, at about 5 deaths per 1,000. There is a strong racial component as well, with black woman about 2 ½ times more likely to lose their babies compared to white women.

Preventing infant mortality is not just about prenatal care. There are four key periods in the lives of women and their children, each vital in determining whether an infant lives or dies: before pregnancy, during pregnancy, at birth and during the first year of life…and the United States is very far behind in all of these areas.

Educating Our Kids

For many young Americans, the number one factor in deciding where to put down roots is the quality of education. If you want your child to succeed in life, give them the best start possible, at the best school.

With all the money spent on education, one might expect the U.S. to rank #1 in the world…and you would be severely disappointed. In fact, the United States ranks a dismal 25th in education. Adding insult to injury, we manage to achieve inauspicious ranking while spending more on education than the total GDPs of many countries that outperform us. For example, the 2012 education budget of the State of California is $108 billion dollars, which exceeds the GDPs of 5 of the countries which offer superior quality of education.

Ok, you want to see the countries that outclass us, so here they are. Statistics come from The Program for International Student Assessment, which is released every three years and tests 15-year-old students in reading, math and sciences. Basically, America earned an Average grade, tying the OECD average rating.

Note: The list above was published in the WSJ. It is generally accepted that China “cheated” by testing only a small sample size of its best students, thus it is not included in the rankings above.

If we delve in to the numbers, it just gets more depressing. The United States is 7th in literacy, 27th in math, and 22nd in science. Taking in to account both medical and education factors, The United States is 25th among 43 developed countries for the best place to be a mother, according to Save the Children.

Maybe we should look at the question of where we educate our children more carefully. How about, which country, not community, has the best schools for my child?

The U.S. is the Greatest Country on Earth – NOT (Viva Borat)

In my quest to prove the dominance of my Nation, I looked at many different statistics and rankings. Here are a few of my findings.

According to the Doing Business rankings compiled by The World Bank, America ranks 13th in starting a business. As a small business owner myself, this is shocking. I always believed that economic freedom and capitalism meant that the U.S. led the world in small business. By god, it is the foundation of our economy and we must be the best! I do take some solace in the fact that the U.S. ranks 4th in the ease of doing business. For more information, see:

The U.S. ranks 47th in press freedom, according to Reporters without Boarders. So much for freedom of the press. Isn’t this covered in the Constitution or some such thing? Maybe I missed this class in law school.

America is ranked 10th in economic freedom, according to The Heritage Foundation and The Wall Street Journal. Like starting a business, I expected my country to lead the world…or at least make the top 5. To quote Heritage: “The United States’ economic freedom score of 76.3 drops it to 10th place in the 2012 Index. Its score is 1.5 points lower than last year, reflecting deteriorating scores for government spending, freedom from corruption, and investment freedom. The U.S. is ranked 2nd out of three countries in the North America region…” For additional information, see:

The U.S. is only the 11th happiest country in the world, according to Columbia University’s Earth Institute. I guess this is why Disney, The Happiest Place on Earth, has expanded in to Hong Kong, Paris, Tokyo, and started an international cruise line.

There are 21 countries better than America in freedom from corruption, according to and the U.S. was ranked 24th in perceived honesty, according to

Viva U.S. healthcare. America is ranked 89th in percentage of children who have been vaccinated according to the World Health Organization.

How well is our economy growing? The U.S. GDP growth rate is ranked 169th out of 216 countries, according to the CIA World Factbook. Our GDP per capita is only 12th in the world, behind Qatar and Liechtenstein.

Our unemployment rate is worse than 102 of the 200 countries listed in the CIA Factbook and we are 142nd out of 150 countries in infrastructure investment.

The U.S. is ranked 192nd, dead last, in the net trade of goods and services, and our budget deficit is ranked 192nd in debt relative to GDP, both of these per the CIA Factbook again.

At lease the U.S. has the money to back up its promises. Well, our reserve of foreign exchange and gold is ranked 19th, right behind Indonesia.

Enough is Enough

Ok, enough bashing of the United States. There must be a few areas where we lead the world. First the good news: We are third in median household income, number four in labor force and number four in exports.

Now for the ridiculous news, the United States leads the world in only three categories.

  1. Number of incarcerated citizens per capita,
  2. Number of adults who believe angels are real, and
  3. Defense spending.

I will leave the angels to the blogosphere, but let’s look at incarceration and defense spending.

According to a study by the King’s College London International Centre for Prison Studies, “The United States has the highest prison population rate in the world, 756 per 100,000 of the national population, followed by Russia (629), Rwanda (604), St Kitts & Nevis (588), Cuba (531), U.S. Virgin Is. (512), British Virgin Is. (488), Palau (478), Belarus (468), Belize (455), Bahamas (422), Georgia (415), American Samoa (410), Grenada (408) and Anguilla (401).”

And some of our States have even higher per capita rates. For example, Texas prisons incarcerated more than 1,000 prisoners per every 100,000 residents. About one out of every 22 adult Texans is in prison, in jail, on probation or on parole compared to one out of 31 nationally.

Considering all of the hype the U.S. puts out on freedom and liberty, it seems inconsistent with the fact that we lead the world in prisons. For me, this demonstrates the great divide between reality (prisons filled to capacity) with hype and marketing (we are the most free and happy country on earth).

Now on to military spending. The global military expenditure states at over $1.7 trillion for 2012, with the U.S. taking up an astounding 2/5ths, or 41% of the world total. America is followed by China at 8.2% of world share, Russia at 4.1%, UK and France both at 3.6%.

Even more amazing: Military spending did not decrease during the recent economic crisis. In fact, it increased. The U.S. led the rise in military spending during the crisis, but was not alone. 65% of the countries for which data is available increased spending. Of the G20 countries, 16 saw an increase in military spending.


In light of the many shortcomings of the United States, how can we lead the world in military spending? I believe it brings in to clear focus the priorities of my country. How does a country that trumpets itself as a world leader of freedoms have the world’s largest per capital prison population? How does the wealthiest nation rank first in medical spending but 49th in life expectancy and place a staggering 178th in infant mortality?

In speaking with friends, clients, and at various conferences around the world, I believe that it is these injustices and inequities that are causing so many Americans to jump ship. Many belive there is nothing they can do to fix, or even patch the boat, so it is time to launch the liferaft. Some choose to retire abroad, some elect to live and work abroad, possibly hoping the boat will make shore and be repaired and refitted, and some have given up all hope and have decided to ditch their citizenship all together.

Try as I might, I can not devise a suitable defense of my coutry, and I am left with one simple question: Where is the best place for me to relocate and plant my new flag as a free citizen of the world?