The Real Reasons the Rich Are Moving Cash to the Caymans

As some you may know Mitt Romney a few weeks ago when he released his tax returns also noted the several millions of dollars he held in offshore bank accounts.  Smart Money was actually out with an article as to why "rich people" are moving their cash offshore.  The piece basically list two reasons 1) Litigation Risk and 2) Political Risk.


One point that the article points out is that even if you have an offshore account the interest you receive on that account still needs to be reported on your tax returns.  Americans are taxed on their global income not just your US income.


Via Smart Money and interview with Jim Duggan, a tax and estate attorney and partner at Chicago law firm Duggan Bertsch who specializes in wealth management issues for the very rich, and he's been practicing in this area for nearly 20 years.

• It's easy to scoff and assume the rich are hiding their money and cheating. Doubtless some are. But enforcement is tight, and the penalties aren't so much draconian as medieval. They are far more severe than for tax evasion onshore. 
• Litigation risk is the old reason. You could get hit by a crazy lawsuit here in the U.S. The wealthy are an easy mark, and anything onshore is vulnerable. But the U.S. courts don't have jurisdiction overseas and if you plan things right you have at least some chance of protecting money held offshore, Duggan says. "It keeps you away from our court system and the caprices of our courts," he says. 
• The new reason, though, is political risk: "Diversification from our government, policies, and banking systems," says Duggan. The last few years have shaken faith in our system. Duggan says growing numbers of his clients are worried about the financial system, confiscation -- the whole shebang. "They're concerned about our government, and where our society is headed. There's a lot of socialistic tendencies, capital controls, the redistribution of wealth." 
• But there's a logical problem here. Imagine a future government did decide to confiscate assets. They'd go after the money you held in Switzerland just as much as the money you held in New York, and the penalties for tax evasion would be as medieval as they are now.  The only way to save your money would presumably be to renounce your citizenship and move into exile. Even then the IRS might come after you. Do you want to spend the rest of your life living next to Roman Polanski in France?