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February 10, 2010

  • IRS Investigates Offshore CC Payments, Pt.1
      It sounds legal but appears fishy.

    In a global community, doing business across multiple borders has become almost ordinary. However, companies who conduct business in one country and are based in another can complicate tax issues particularly those pertaining to credit card transactions. Here's how it works. A software company incorporated in Panama and based in New York does a $3 million annual business; however, the company's credit card payments are processed and sent to a bank in Panama. The company doesn't pay the U.S. taxes; they pay the much lower tax rate in Panama. It all appears to be perfectly legal. Nevertheless, the Internal Revenue Service (IRS) doesn't like it and is searching for another way to legally rein in the taxes from these off shore credit card transactions. Some members of the US government's tax strong arm feel it's just another form of tax evasion.

    The practice of small businesses incorporating in foreign countries and conducting business within U.S. borders has become a growing trend. According to IRS estimates, the U.S. government is losing nearly $100 billion a year in lost revenue stemming from credit card payment transactions alone. The companies that set up business in this manner say they operate within the law and say their customers win because they are not charged U.S. sales tax. They also say that the IRS is fully aware of how it works and that they pay income tax on any credit card money that is brought back into the U.S. If the company follows all the necessary steps, they are not breaking any laws.

    Despite the claims that these companies make that they are operating completely within the guidelines of the law, the IRS isn't convinced that some companies might not be reporting all the offshore credit card activity that is brought back into the U.S. Some members of the card processing industry agree with the IRS and that these companies have more money stashed in foreign banks than reported. If so, what's the IRS to do?

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