From: Tim May <tcmay@got.net>
Date: Fri, 18 Jul 1997 23:58:42 +0800
To: Ryan Lackey <cypherpunks@Algebra.COM
Subject: Re: "Time to Walk the Walk down the Gang Plank"
In-Reply-To: <199707180421.XAA09823@mailhub.amaranth.com>
Message-ID: <v03102805aff5380a7024@[207.167.93.63]>
MIME-Version: 1.0
Content-Type: text/plain



At 1:33 AM -0700 7/18/97, Ryan Lackey wrote:
>[regarding TC May's comment that it still wasn't practical to live off
>of exclusively offshore investment income tax-free, and that advocates
>of offshore banking did not even claim it was, but that it might be in
>10 years.]

I'll answer a few of Ryan's questions, but not in much detail. First,
because this is not a list oriented toward offshore investments and tax
avoidance strategies (though crypto anarchy touches on these issues).
Second, because opinions are especially cheap in this area. Third, because
advice/guidance depends critically on many factors, especially the amount
of money one has.

>What exactly makes it impractical to live off of the investment income
>from off-shore investments exclusively?  I'm kind of broke right now, but
>I was assuming that the combination of a set of offshore accounts
>and an offshore visa card used to pay for practically everything, as
>well as perhaps smuggled in cash and gold/etc. which could be sold outside
>of reported channels would be enough to allow you to pay untracededly
>for almost everything.  Then, if you did not have a primary residence

Well, first off, there's a huge difference between living at a "kind of
broke now" level and living at higher levels....those who are "kind of
broke" often pay minimal taxes anyway, so having their minimal assets, if
any, in a bank near the youth hostel in Amsterdam is hardly a comparison to
having, say, much larger amounts in offshore banks.

Getting the assets out is often a sticking point. Recall the oft-discussed
requirement for reporting offshore assets. And various bank and brokerage
requirements for reporting transfers. Attempts to evade these limits are
often successful...but sometimes not.

(A college friend of mine is married to an Assistant DA for the Brooklyn,
N.Y. area...one of her cases some years back involved prosecuting a guy who
was taking cash out of the country, sewed into the lining of his coat.)

Contrary to what is sometimes claimed here, it is not a matter of just
"wiring" one's assets out to a foreign site, and then being homefree.

By the way, the United States taxes foreign income for all U.S. citizens
for up to 10 years after their departure from U.S. soil. Doesn't mean they
can get this tax, but they will try. And those who don't play ball face
"failure to file" charges, etc. As computerization increases, border checks
will increase.

There have been several proposals, none yet enacted (fortunately), to
impose an "exit tax" on assets. That is, if one tries to transfer money out
a tax would be imposed. This even before the assets are sold, or income
realized. Similarities with the exit taxes of other repressive regimes are
obvious.


>in the United States, but rather spent life living in a college dorm
>(which is unlikely to flag anything at the IRS, being part of a bill which
>is routinely paid by third parties, often from outside of the US), on a
>boat registered outside of the US, or visiting places around the country
>and world, plus had some plausible way of hiding this extra income of
>yours, you could get by reporting only an abusrdly low amount of income
>from a part time job or something, and no one would be the wiser.

Sure, there are many possible scenarios. The "perpetual tourist" one is an
example. Again, the issue, espeically for folks like me, is gettign the
assets outside the view of the IRS in the first place. FinCEN is pretty
quick to spot transfers.

(All of you should be well familiar with "FinCEN," the Financial Crimes
Enforcement Network, a secretive task force made up of members of NSA, FBI,
IRS, CIA, Treasury, Commerce, etc. I first started hearing about it in
1990, and "Wired" did a big expose of it in one of its early issues. Web
searches will turn up various articles.)

Note also that stocks and bonds, "securities," are essentially no longer
available as "bearer instruments." That is, they are generally tied to some
identity, either as an account entry at the issuer, or similar. Thus, the
"stock certificate" I so cleverly hide amongst my papers when I board the
flight to Austria is *not* the actual asset! The banks and transfer agents
still have the asset (which is just a book entry somewhere), and my
certificate in Foobar, Inc. is just a piece of paper: it's location in my
safe deposit box or in Austria remains "secret"--until I sell some of it.
Then, magically, the appropriate notifications are mailed to the IRS. This
is basic stuff, but it's often forgotten by people.

I'm not saying there aren't ways to get assets out of the U.S. while still
allowing folks to travel and live in the U.S. But they carry risks, and are
getting harder to pull off. (If crypto anarchy, geodesic economies, digital
money, digital bearer instruments, etc. come to pass, things may be easier.
But we are quite a ways away on this.)


>Then, as your income/assets grew, you could continue to dump money from
>off-the-record sources into an offshore account, continue to use the
>offshore account for real and untraced purchases, and continue to draw
>your small salary to show that you are paying taxes and are just poor.
>Then, graduate from university and live the rest of your life vacationing
>around the world, or skip the first step if you're smart. (From what I
>know of IRS auditing procedures, they'd be remarkably more apt to find
>out if someone with a real income's income suddenly fell to $4k/year and
>stayed there from $100k+/year with no explanation given than if mine went
>from -$30k a year to -$26k/year, so starting when you're broke might be
>a decent plan.)

Starting to hide assets when one is poor is obviously an approach. However,
most of us didn't think this way when we were poor. Then we got "not poor."
With the assets very visible--houses, stock, bank accounts, etc.

Bear in mind that administering one's offshore bank accounts still requires
some communication. Trips to Europe or the Carribbean are certainly
possible. Much more could be written on this, but I'll pass.

>
>Are there any major obvious holes in this plan?  Now all I need is to
>do some useful, crypto-anarchist work and be
>paid under the table, perhaps taking a month or two vacation to
>Antigua or someplace in the process.
>

Good plan. Maybe you'll be near Jim Bell.

There are lots of black market fortunes being made everyday...I'd be
disingenuous to say otherwise. But some risks.

In any case, beware the currency reporting and transport laws. Declarations
of currency, as noted above.

A last note. Making money is more important than avoiding taxes on a much
smaller amount of money. I _hate_ paying the taxes I have to pay, but
having money is more important than avoiding taxes.

I for one have chosen to remain in California, for all of its political
faults. (But California is correcting many of these faults, such as its
elimination of "affirmative action" in the UC system, and so on. Many call
this a "right wing backlash," but I call it a breath of fresh air.)

--Tim May

There's something wrong when I'm a felon under an increasing number of laws.
Only one response to the key grabbers is warranted: "Death to Tyrants!"
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
tcmay@got.net  408-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
Higher Power: 2^1398269     | black markets, collapse of governments.
"National borders aren't even speed bumps on the information superhighway."