Here's an irony: Even as the U.S. government is cracking down on illegal foreign accounts, other new laws and proposals could present big incentives for the wealthy to move more money offshore.
If you've been keeping up with the IRS news, then you've probably been watching the developments on the treatment of offshore accounts. On one hand the IRS has been stepping up its treatment of foreign accounts and noncompliant taxpayers, but with the other hand it has been offering amnesty and incentives for coming clean. As a result, we've entered the third period of amnesty for foreign accounts.
With all the commotion over illegal foreign accounts, it's good to know that not all foreign dealings are illegal (or even specially taxed by the IRS), as a recent article from the Wall Street Journal points out. In fact, there appears to be an expanding number of legal ways to follow offshore dealings and with great tax advantages.
With offshore funds, specifically hedge funds, a number of different deduction possibilities come into play and a number of taxation levels fall away with jurisdiction issues. For example, according to the Wall Street Journal article below, holders can take state-tax and other deductions curtailed by the alternative minimum tax, avoid some or all of the 3.8% Medicare tax on investment income taking effect in 2013 for most couples with adjusted gross income above $250,000 ($200,000, single), and avoid limitations on itemized deductions for upper-bracket taxpayers.
Of course, there also are significant drawbacks to bear in mind, but those depend on how you employ the accounts. Finally, while powerful, funds aren't the only means for taking advantage of acting as an "international citizen" first.
Reference: The Wall Street Journal (December 10, 2011) "What's Next for Offshore Accounts?"