As regular readers may recall, I recently wrote an article on the Bickmore case. This case involved a man in Utah named Kent Bickmore, who was actively promoting a fraudulent scheme involving Nevada and Wyoming corporations to evade US taxes. I pointed out that what Bickmore was proposing was soobviously “to good to be true� that any person who fell for his pitch was not particularly deserving of sympathy. The point is, there are fraudsters out there in the asset protection world, as in any industry, and people do need to use some basic common sense when choosing an advisor with whom to work.

However, I recently came across an article reminding me that even good people can unintentionally mislead. I subscribe to a free daily investing investing e-mail. The author is one of the better-known practioners in this field, has a solid overall track record, and overall seems (although I do not know him personally) to be a solid and ethical guy. However, in reading a recent article of his that touched on offshore strategy, I realized that even the nicest people can sometimes unintentionally mislead us.

The author usually writes purely about investing – stocks, commodities, Gold etc. – but a couple weeks ago he had a short article touching on the use of offshore life insurance as an estate-planning tool. Now, I will say that there are some quite compelling reasons to consider using life insurance from both a tax minimization and estate-planning perspective, and offshore life insurance – particularly a type of life insurance called “Variable Universal Life� - offers some quite compelling benefits and flexibility. I will shortly be writing a piece going into this in more detail.

However, in going listing the advantages of offshore life insurance, the investment writer in question made one startling claim that made my jaw drop. He wrote that offshore life insurance was NOT reportable to the US Treasury Department as a financial account under the Foreign Bank and Financial Accounts (FBAR) requirements. Now, what is true is that the IRS and Treasury Department require any American with any offshore accounts or combination of accounts of any kind (bank, LLC, Trust etc.) that exceeds $10,000 at any time during the calendar year to report it by filling out a simple one page form TD F 90-22.1. It is not a onerous form to fill out, and doing so can potentially save you loads of trouble with the US Government down the line – as indeed, many of the former clients of UBS in Switzerland are now discovering!

Many people tend to think of the FBAR form as applying only to foreign bank accounts. However, this is incorrect. A cursory look at the IRS’ FBAR FAQ page clearly seems to indicate that they consider the FBAR requirement to be quite broad:

Q.What is a financial account?
Answer: A “financial account� includes any bank, securities, securities derivatives or other financial instruments accounts. The term includes any savings, demand, checking, deposit, or any other account maintained with a financial institution or other person engaged in the business of a financial institution.

Now, I suppose that one could theoretically make the argument that a life insurance investment policy is not a “financial instruments account,� and that a life insurance company is not a “financial institution� – but my gosh, you are really splitting hairs. The Obama Administration, and the US Government more broadly, have decided as a fundamental matter of policy that they will no longer tolerate the use of the offshore financial system by US citizens to evade lawfully due American taxes. Any question of their determination to end this practice should have been laid to rest in recent months when they went after UBS.

So, knowing all this, why would anyone in their right mind try to get too cute on the FBAR requirements?? It makes no sense to us here at Global Strategic Advisor to take chances. We strongly emphasize the basic reporting requirement in all our communications, and continue to strongly encourage anyone with any kind of offshore financial structure to err on the side of caution and report it! Look, we understand many of our readers may be ideologically opposed to taxes or to the reporting requirements of the FBAR and other Government mandates; fine, you have every right to your opinions, and if you feel strongly enough about your position we have the following suggestions for how to act on your beliefs:

· Protest at the next Tea Party near you;
· Join an Ayn Rand fan club;
· Attend the next Libertarian Party Convention;

For goodness sake though, do not take any action which has even the slightest chance of violating the FBAR or any other financial reporting laws!

Just to confirm my instincts, I spoke with a quite senior US tax lawyer who is heavily involved in the offshore world. Not surprisingly, he confirmed that it was certainly his opinion that a life insurance policy with an offshore firm is certainly FBAR-reportable.

So, the takeaway from this article is that as in all things in life, even nice and well-meaning people can lead us unknowingly astray. I suspect that thousands – even tens of thousands of people – receive this investment writer’s free articles, and it seems to us that he probably owes it to his loyal readers to be a tad more careful when he provides advice to thousands of people that is well outside his area of knowledge…..We at GSA only focus on structuring legitimate, tax-compliant business structures, and we will never recommend you do anything that we would not feel entirely comfortable doing ourselves.