In the last few years, I've gotten more and more client inquiries about saving taxes with some kind of offshore arrangement. People call me because I've written a number of articles about offshore taxes in relation to asset protection trusts. The author of a popular book on offshore subjects asked me to review his book (prior to publication) with respect to the tax issues and he include information about me in the book. That led to more inquiries after the book was published.

Over the past few years, I've devoted the bulk of my time as a tax consultant dealing with various offshore related issues. Each new client has led me into some new area of inquiry and research, which has led to more articles which generated more client inquiries that resulted in new areas of research. I didn't plan to become an offshore tax specialist, but my subscribers and clients have been pulling me in that direction. 

If you want to save taxes by going offshore, I'll save you some time. Don't call me if you are looking for someone to help you to play "hide and seek" with the IRS. If any promoter wants you to engage in any strategy that doesn't involve complete disclosure to the IRS, and whatever other government agencies may requires such disclosure, run for the nearest exit because it's virtually certain to be illegal. 

If you are looking for ways to save taxes by playing the tax game within the rules, I can probably help you. Chances are you can do as much or more to save taxes with U.S. tax planning as with offshore tax planning. 

If you are interested in going offshore for asset protection or international diversification and want a tax advisor to help you be sure you are doing what the law requires, I'll probably be glad to help you.

If you have an export business and are looking for some tax breaks, I can probably help you. 

If you want to create a division of your business that only conducts business outside the U.S., there might be a way that you could defer some taxes from the profits on that business.

If you want to create an international "dynasty" trust to avoid multiple generations of estate taxes, I can probably help you with the tax issues. 

There's been a growing interest in offshore tax planning. Perhaps it's because the world is getting much smaller, very quickly. 

The world wide web and the other elements of the internet are having a profound impact on how much people in different countries communicate with each other. It's now possible to communicate almost instantly with people half way around the globe and get an answer in the blink of an eyelash. Web pages give people in other countries exposure to each other, without ever having to spend the time or money to travel to far away places. 

It's been said that Americans are among the most provincial people in the world. I certainly know that as a resident of the "heartland" of the U.S., I have had little direct exposure to people and the cultures of the rest of the world. But that's changing for me and for the rest of the world. As more Americans become better acquainted with people in other countries, more U.S. citizens will become interested in financial arrangements outside the U.S. They may decide to open a foreign bank account. Perhaps they will decide to form a business alliance with a business from another country. Some Americans will decide to set up an asset protection trust in a jurisdiction with laws that are more favorable to a defendant than the laws of the U.S. 

As the barriers to investment, banking and business outside the U.S. diminish, those Americans who choose to invest or to do business abroad will find themselves needing some help with the insanely complicated U.S. tax laws that apply to international transactions. Most likely, the taxpayer's tax preparer or public accountant won't be familiar with the many special sections of the tax law that apply to those who do business or who invest outside the U.S. Generally, this kind of expertise is only available at the big international CPA firms. The trouble is, these firms mostly cater to the large international corporations and their executives. They aren't always eager to spend the time with individual investors and small entrepreneurs who only represent a few hours of billing time. 

I make no claim to being an "expert" on international tax laws. Like most public accountants, I have largely ignored this part of the U.S. tax code - until 1994. Since then, I've begun to learn as much as I can about the subject because I perceive there will be a growing need for tax advisors who are able to help people who have financial involvements outside the U.S. If your local tax preparer isn't willing to take the time (on his dime) to become familiar with these tax rules and if you can't get one of the big accounting firms to take you on as a client, give me a call. I don't have all the answers to every offshore tax question, but I'm working on it. 

I've teamed up with J. Richard Duke, an attorney and law professor who devotes nearly all of his time to international tax law services, to write an extensive seminar reference manual for our seminars -- which we call the Offshore Tax Boot Camp. The manual is a 575 page introduction to the subject of international tax law.

Duke provides legal services relating to international tax law and I provide tax accounting services relating to international transactions by U.S. persons or U.S. transactions by foreign persons. 

Here are a few of the tax reporting requirements you must satisfy if you go offshore. 

• Form 3520 must be filed when you create or add to a foreign grantor trust.
• Form 3520-A must be filed every year if you have created a foreign trust.
• Form 5471 may be required if you or your foreign trust have an interest in a foreign corporation.
• Form 8621 must be filed if you or your offshore trust or a controlled foreign corporation have an interest in any offshore mutual fund or similar entity.
• Form 8865 may be required if you or your foreign trust have an interest in a foreign partnership or LLC.

I'm prepared to assist taxpayers with the preparation of these forms, without having to be involved in the preparation of the rest of their federal return or their state income tax returns. 

Basically, the information from these forms feed into ther individual, partnership, trust or corporate tax returns and can be prepared independently from the rest of the return.  In most cases, I can probably do the job for abut half to one-third of what a local tax preparer would have to charge if they were to charge for the full amount of the time they would have to spend to become familiar with the instructions and to actually prepare the forms. If they don't charge for the time they spend, then they will be losing money because of doing that work. I don't believe they will want to do that unless they are desperate to keep your business. 

Years ago, the Congress passed a law requiring the IRS to estimate the amount of time that is required for taxpayers to complete each of the different tax forms. The IRS now publishes that information with the instructions to each form. They break it down between their estimate of the time that is required for continuing record keeping, the time required to read the instructions and the time required to actually prepare the form and mail it to the IRS. Here are their estimates for the forms listed above. I've shown the time in hours and fractions of hours rather than in hours and minutes. 

 

Form Number	Record Keeping	Reading The Law	Preparing the Form
3520	50.50	4.75	6.67
3520-A	29.50	.88	1.50
5471 (Excluding Schedules)	87.50	27.00	32.00
8621 (For each separate mutual fund)	12.20	3.67	4.00
8865 (Draft - no estimate at this time)

If these figures are accurate and if your accountant charges $100 an hour, it would cost you about $1,100 for form 3520 and about $230 for form 3520-A. However, the form 5471 (absent the schedules) would cost you $5,900 and each form 8621 would cost you $767. 

I haven't been able to find any "inside" information as to how the IRS comes up with these  estimates, but I find that most of their estimates are usually understated in terms of the time required for the record keeping and learning about the law. They seem to be overstated in terms of the time required to actually prepare the form if all the necessary figures are available and if the preparer has a computer system to help with the preparation process. These time estimates are also heavily affected by the size of the reporting entity and the volume of transactions that must be summarized and reported. 

Their estimates for the record keeping time would represent the time you or your company accountant would have to spend (on average) to organize and summarize your information in the manner required to complete the forms. If you give all the figures to a tax preparer at the end of the year, these time estimates could serve as a benchmark  to estimate the hours the preparer will have to spend to organize the raw data into the format required. By way of example, both form 5471 and 8865 require that the corporation or partnership records be maintained using Generally Accepted Accounting Principles (GAAP) rather than a cash method of accounting or a hybrid method. This can add substantially to the time required to adjust the raw data into the form required. 

Based on the time I've already spent reading the law to understand these forms, I would have to say that the IRS estimates are preposterous understatements for everything except form 5471. However, if someone were to approach the instructions for that form with no background in the subject, it might take 27 hours (or more) to learn how to prepare the form. If your tax preparer has never had to prepare these forms before, you should be prepared to pay for the time they will need to learn how to do that. If you out-source the preparation work to a professional who is familiar with the forms, you should not have to pay for that time - but you should expect to pay more per hour. (Blatant self promotion.) 

The actual preparation time depends greatly on whether the form is being prepared by hand or by a computer. It seems these estimates are an average. I have not found any of the major tax preparation programs for tax professionals that include these forms - but there are some specialty programs available for those preparers who do more than a few of these forms each year. If your preparer has to buy the stand-alone software just to do this work for you, you will most likely be asked to pay for the software and to pay for the time required for your preparer to learn how to use it. If you out-source this work to a professional who does a number of these you should not have to pay for the cost of the software or the time required to learn how to use it. (Another blatant self-promotion.) 

If you hire me to do this work for you, I will charge you for the actual preparation time and will not charge you for the cost of the software or the time that I had to spend to learn how to use it. That's the good news.

The 'bad news" is that I probably charge more per hour than your local tax preparer. That's how I get compensated for the time I spend on learning how to prepare the forms and the time and money I spend on the special purpose software.  Also, if the information you provide me isn't organized as required to prepare the forms, I will also have to charge for the time to do that for you.

Vernon Jacobs