Jeffrey M. Verdon Law Group, LLP
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Never Judge a Book by Its Cover

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"He has offshore bank accounts."

When you hear this phrase, what is your gut reaction?

For those of us who consume the news, read John Grisham novels or watch TV, when we hear "offshore bank accounts," our guts scream "tax evader!" or worse. We think a bad guy is hiding assets. We think mafia, drug running, embezzlement, assassins, Ponzi schemes, white collar criminals, lengthy trials, and jail time. The media tells us that if someone has an offshore bank account, they have to be guilty, guilty, guilty!

Ok, that's our gut reaction, which is often based on assumption, instinct and innuendo borne of rumor and half-truth.

Our imaginations always get the best of us.

Remember what your mother always told you? Never judge a book by its cover. However, many of us do it all the time. We shouldn't, and here's why in a recent example:

The cover:

According to the IRS, Jimmy Pfleuger is a tax cheat and a criminal. After all, he has an offshore account, so that makes him guilty of a tax crime, right?

The book:

Jimmy Pfleuger, an 87-year old retired automobile dealer, was charged with filing false tax returns after the DOJ accused him of hiding $15M in a Swiss bank account without paying taxes on the sale of a $27.5M commercial property.

So, because Pfleuger has an offshore account, he is guilty of a tax crime, right? Wrong. The mere presence of a foreign bank account and foreign trust does not mean there has been a tax crime. When candidate Romney revealed he had offshore accounts in the Caymans, he got hammered by the press and the opposition. Turns out, he reported his accounts and had a legitimate reason for having some of his investments there.

In Mr. Pfleuger's case, an overzealous prosecutor used Pfleuger's former CPA Dennis Duban as his primary witness. Because Duban earlier pled guilty to related tax fraud charges and was alleged to have embezzled $2M from Pfleuger, his testimony was not credible, and Pfleuger's criminal tax attorneys successfully argued that Duban masterminded the tax fraud upon which their client was initially indicted. The government failed to prove that Pfleuger conspired to obstruct the IRS, and U.S. District Court Judge Leslie Kobayashi found Pflueger "not guilty" on all four federal tax fraud charges.

Pfleuger's offshore account was created to legitimately protect his assets under prevailing U.S. law. Such accounts do not serve to defraud the government; rather, when properly reported, they are beneficial to both the government and the account holder.

What having an "offshore account" really means:

Despite recent negative press about Americans having offshore bank accounts, most are legitimately established, properly reported and used in connection with legitimate purposes, including asset protection planning from future unforeseen lawsuits. Yet there is now a public stigma that if one desires to place assets offshore, they are tax evaders. Nothing can be further from the truth. Having an offshore account really means, "protected," "smart," and "savvy." My personal experience is that in over 20 years of working on the formation of fully tax compliant offshore asset protection trusts, I am not aware of a single client's tax returns being flagged for audit. Why? The IRS doesn't care if you go offshore as long as you tell them you have.

Proof: The Department of Treasury wouldn't print the myriad of forms for U.S. taxpayers who have offshore activities to prepare and file if going offshore is illegal.

The next time you hear or read about a citizen holding assets outside the borders of the U.S., think about Mr. Pflueger and his bogus indictment. Remember that we should not judge a book by its cover-until we open and read what's inside.

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