By Gail Liberman, Special to the [Palm Beach] Daily News

On my recent trip to the Cayman Islands, my tour guide expressed little concern over the IRS’ worldwide tax crackdown.

The Cayman Islands long has been an offshore tax haven for many Floridians.

“It won’t happen for a long time,” the tour guide smiled, noting that he also holds a builder contractor’s license.

On Nov. 29, shortly after my tour guide’s remark, the U.S. Department of the Treasury announced it had signed an agreement with the Cayman Islands aimed at nailing U.S. tax evaders. The agreement requires foreign financial institutions to begin reporting information on U.S.-based account holders to the IRS, either via Cayman Islands tax authorities or directly.

This agreement — the Caribbean’s first — is part of the worldwide implementation of the U.S. Foreign Account Tax Compliance Act of 2010. Under the act, foreign financial institutions that fail to report the accounts of U.S.-based customers could suffer a 30 percent withholding tax on certain U.S. transactions.

Uncle Sam could find out whether you’ve been failing to file the right forms that disclose your offshore accounts. The result could be huge fines or imprisonment.

“Most of the (tax information) sharing is going to start taking place early next year,” says Palm Beach lawyer Michael Miller. “That’s when it’s really going to hit the fan.”

The July 1 start date for much information-sharing keeps getting postponed, but repercussions already are being felt. Foreign financial institutions, unwilling to deal with the administrative hassles of the act, are closing the accounts of U.S.-based customers or declining to open new ones.

The Cayman Islands, a British territory, is well-known for having more companies than people — some 80,000 companies vs. 55,000 people. It’s also known as the world’s hedge-fund capital.

Fourth on the Tax Justice Network’s “Financial Secrecy Index,” the Cayman Islands follows only Switzerland, Luxembourg and Hong Kong in offshore secrecy, the network reports. The Tax Justice Network believes that international tax havens foster inequality and poverty, corrode democracy, distort markets, and promote crime and corruption.

Miller says he’s hearing only about notices of account closures of U.S. customers from Swiss financial institutions.

Swiss banks were offered an amnesty program from criminal prosecution if they agreed to turn over names of customers based in the United States. One shocking repercussion of the Swiss-bank crackdown: The banks are reporting information on accounts of U.S.-based customers as far back as August 2008 — even on accounts long closed!

Fortunately, banks have notified their U.S. customers sufficiently in advance. This gives account holders time to evaluate options. Among them: moving money to a jurisdiction that is less cooperative with the IRS; renouncing U.S. citizenship; or entering the IRS Offshore Voluntary Disclosure Program. This program might provide reduced penalties in exchange for full disclosure.

Some Swiss banks, Miller observes, have agreed to share their clients’ cost of getting into the IRS Offshore Voluntary Disclosure Program.

For more on this story go to:

http://www.palmbeachdailynews.com/news/news/local/time-to-worry-about-cayman-islands-accounts/ncKsF/