1 Gregory v. Helvering, 293 U.S. 465, 469 (1935). Some corporations believe that they have a duty to their shareholders to minimize tax liability. CAROLINE DOGGART, TAX HAVENS AND THEIR USE, 6-7 (1987 ed.).

2 See Bullen v. State of Wis., 240 U.S. 625, 630 (1916) (stating that taking advantage of what law allows does not amount to tax evasion); United States v. Isham, 17 Wall. 496 506 (1873) (suggesting method of avoiding Stamp Tax Act of 1862); Commiss ioner of Internal Revenue v. Newman, 159 F.2d 848, 850 (1947) (Hand, J., dissenting) (stating that courts have repeatedly said that arranging one's affairs to keep taxes low is not sinister); Jones v. Helvering, 71 F. 2d 214, 217 (1934) (saying taxpayer m ay resort to any legal method available); Iowa Bridge Co. v. Comm'r, 39 F. 2d 777, 781 (1930) (stating transaction is not illegal simply because its aim is to reduce tax liability). See generally MARSHALL J. LANGER , PRACTICAL INTERNATIONAL TAX PLANNING, ▀3, at 1-2 (3d ed. 1985) (describing tax shelters and loopholes).

3 MARSHALL J. LANGER, HOW TO USE FOREIGN TAX HAVENS 12 (1975). Because this page considers the situation of the U.S. taxpayer, it will use the word "domestic" to refer to persons, places or activity within the United States and use the word "foreign" to refer to all things outside the United States. See infra notes 52, 55, 58, 61, 79, 107 and 126 (using the term "domestic"); infra notes 4, 10, 13, 15, 19, 24, 50, 51, 52, 53, 55, 57, 60, 81, 83, 88, 89, 103, 104, 107, 120 and 127 (using the term "foreign").

4 See infra notes 6-62 and accompanying text (discussing foreign tax havens).

5 See infra notes 63-100 and accompanying text (discussing renunciation of U.S. citizenship).


7 LANGER, supra note 3, at 12; see Sen. Pete V. Domenici, "The Unamerican Spirit of the Federal Income Tax," 31 HARV. J. ON LEGIS. 27 3 (1993) (stating that countries' method of taxation deeply influences economic growth).

8 See, e.g., Francene M. Augustyn, "A Primer for Incorporating Under the Income Tax Laws of France, Germany, or the United Kingdom," 7 J. INTL. L. BUS. 267 (1985) (comparing tax laws and tax rates of three European jurisdictions).

9 See LANGER, supra note 3, at 13 (stating that number may be as few as six).

10 See LANGER, supra note 3, at 2 (classifying as tax haven any country imposing less than 20% income tax rate); KINSMAN, supra note 6, at 5 (defining tax hav en as country exacting little or no tax). But see LANGER, supra note 3, at 12 (stating that some countries prefer the term "financial center"). The U.S. Treasury Department considers six factors in determining whether a country is a tax haven: 1) relatively low rate of tax; 2) bank or commercial secrecy laws or administrative practices; 3) large banking and financial sector relative to the general levels of that country's economic activity; 4) avai lability of modern communications facilities; 5) absence of currency controls on foreign deposits of foreign currency; and 6) self-promotion as an offshore financial center. DEPARTMENT OF THE T< FONT SIZE=2>REASURY, TAX HAVENS IN THE CARIBBEAN BASIN 2 (1984) [hereinafter TREASURY]. The Treasury Depart ment uses no single, clear, objective test to identify a tax haven. Id. at 3.

11 LANGER, supra note 3, at 26-27; KINSMAN, supra note 6, at 94.

12 LANGER, supra note 3, at 99; KINSMAN, supra note 6, at 97.

13 See Online Guide to the Cayman Islands at http://cs.fit.edu/~jgoddar/banking.html (stating that Cayman has grown over the last twenty years to become fifth largest financial center in world). Cayman became a tax haven in either 1959 or 1962 when the islands secured independence from Jamaica and became a Crown colony ( a dependent territory of the United Kingdom). See DOGGART, supra note 1, at 110 (stating that Cayman separated from Jamaica in 1959); ADAM STARCHILD, TAX HAVENS FOR CORPORATIONS, 44 (1979) (stating that Cayma n separated from Jamaica in 1962).

14 TREASURY, supra note 10, at 3; see DOGGART, supra note 1, at 25 (discussing legal tax avoidance through use of corporation in tax haven); DOG GART, supra note 1, at 32 (stating that Cayman's guarantee of secrecy lures investors wishing to hide assets and income from IRS).

15 TREASURY, supra note 10, at 9 (1984); OECD, supra note 6, at 16. In 1970, Congress passed the Foreign Bank Secrecy Act (also known as the Swiss bank Act) which criminalized the use of foreign bank accounts to evade U.S. taxation. DOGGART, supra note 1, at 81.

16 OECD, supra note 6, at 16. But see TREASURY, supra note 10, at 8-9 (delineating between tax planning [use of intended loopholes] and tax avoidance [use of unintended loophole s]).

17 TREASURY, supra note 10, at 3.

18 DOGGART, supra note 1, at 25; OECD, supra note 6, at 24 . The corporation typically reinvests the capital to earn further tax-exempt income. DOGGART, supra note 1, at 25. Possible streams of income include dividends and interest from securities portfolio, life insurance proceeds, royalty income, or lottery winnings that are sufficiently large enough to cover the costs of setting up and operat ing a corporation. DOGGART, supra note 1, at 31. The tax code requires that transfers between related parties be conducted with "arm's length" prices. I.R.C. ▀ 482. Such price valuation can be ve ry difficult, however, in actual practice. See Hines and Rice, supra note 6, at 13 (discussing transfer pricing of intangibles). Withholding tax may also apply in some instances. See, e.g., I.R.C. ▀▀ 831, 881 (requiring withholding of 3 0% of domestic income to non-resident aliens).

19 See I.R.C. ▀ 551(b)(2) (exempting from definition of "foreign personal holding company" those corporations not formed to evade U.S. income taxes); infra notes 32-33 and accompanying text (explaining how to avoid designation of "fore ign personal holding company"). One such purpose for U.S. corporations could be issuance of "eurobonds," securities offered to non-U.S. residents. See DOGGART, supra note 1, at 26-30 (d iscussing eurobonds as device for raising loan finance on an international scale); RONALD A. ADEE, REGULATION S: THE SAFE HARBOR FOR OFFSHORE SECURITIES TRANSACTIONS, A4 (1991) (discussing legality of forming Cayman corporation for specific purpose of issuing eurobonds). Another purpose might be to avoid cur rency controls or costly procedures. OECD, supra note 6, at 24. The most common use of this type of company is asset administration. OECD, supra note 6, at 25. Asset administration does not result in the internal revenue code's designation of "foreign personal holding company." I.R.C. ▀ 551(b)(2); see supra note 31 and accompanying text (discussing flow-through drawback of "foreign personal holding company " designation). Also, conducting business in the U.S. can lead to reporting requirements. See I.R.C. ▀ 6038A (requiring information from certain foreign corporations).

20 See LANGER, supra note 2, ▀60, at 1 (discussing complete absence of direct taxation in Cayman); id. ▀ 60, at 17 (opining that Cayman is an excellent place to incorporate a holding or investment company). Cayman also grants long-term guarantees against possible future taxes to specifically exempted corporations. Id.

21 See OECD, supra note 6, at 24, n.7 (suggesting that base company may be holding company, investment company, finance company or trading company).

22 DOGGART, supra note 1, at 25; see LANGER, supra note 2, ▀ 60, at 1-19 (discussing formation of corporation in Cayman Islands). The company must incorporat e because income to a sole proprietorship or partnership flows through to the taxpayer. I.R.C. ▀▀ 61(a)(2) and 61(a)(13). In addition, the company must have a business interests other than tax savings for the owner(s). See supra note 15 and accompanying text (discussing legitimate business purpose).

23 I.R.C. ▀ 1491.

24 See STARCHILD, supra note 13, at 12 (stating that corporations formed in civil law countries are separate legal entities for U.S. tax purposes). Depending on the source of that income, it may still b e subject to a 30% withholding tax. See I.R.C. ▀▀ 881, 1442 (subjecting foreign corporations to withholding tax on U.S. sourced income).

25 OECD, supra note 6, at 25; see I.R.C. ▀▀ 61(a)(3) and 61(a)(7) (including dividends and interest in gross income).

26 See TREASURY, supra note 10, at 9-10 (stating that one of few U.S. tax advantages for use of tax haven is in deferral of unremitted income). U.S. citizens may defer income to a year when they have o ffsetting losses, are in a lower income bracket or have renounced U.S. citizenship. DOGGART, supra note 1, at 59.

27 OECD, supra note 6, at 25.

28 Id. Using the base company to sell assets may also result in capital gains which are often taxed at a lower rate than income. Id. at 62. Use of company property by a shareholder raises problems for the U.S. citizen seeking to prove the c ompany is a legitimate business. See I.R.C. ▀ 553(a)(6) (designating such compensation as "foreign personal holding company income"); infra notes 32-33 and accompanying text (discussing avoidance of the designa tion of "foreign personal holding company").

29 DOGGART, supra note 1, at 58; OECD, supra note 6, at 25. Proving that the arrangement is a sham may be difficult for the IRS, however. See OECD, supra note 6, at 79 (discussing the difficulty of ascertaining facts and intentions).

30 I.R.C. ▀ 482.

31 I.R.C. ▀551. The designation of "foreign personal holding company" has the result that U.S. owners are liable for the company's passive income, whether distributed or not. DOGGART, supra note 1, a t 80.

32 To avoid designation as "foreign personal holding company," no five of the U.S. shareholders can hold more than 50% ownership. I.R.C. ▀ 551. Note that incorporating with several shareholders may lead to additional penalties for conspiracy sho uld a court decide the transactions are fraudulent. 18 U.S.C.A ▀371 (1988).

33 I.R.C. ▀552(b)(2).

34 I.R.C. ▀ 552.

35 Rev. Proc. 88-1.

36 Id. A private letter ruling is not, however, binding on the government without a closing agreement. Rev. Proc. 95-1. The taxpayer must show good reasons for a closing agreement and convince the IRS that such an agreement will not prejudice the i nterests of the government. Id.

37 Rev. Proc. 88-8. The taxpayer must also pay a fee of US$200. Id.

38 Rev. Proc. 95-1.

39 LANGER, supra note 2, ▀ 60, at 9; KINSMAN, supra note 6, at 104. There is an exception for local activities done in furtherance of business carried on outside th e Islands. KINSMAN, supra note 6, at 104.

40 Id., ▀ 60, at 12. An exempted company must pay a minimum formation fee of US$1,020. Id., ▀ 60, at 16.

41 LANGER, supra note 2, ▀ 60, at 8; KINSMAN, supra note 6, at 104.

42 LANGER, supra note 3, at 127.

43 DOGGART, supra note 1, at 111; STARCHILD, supra note 13, at 45; see supra notes 26-27 and accompanying text (discussing incorporation with several owners to avoid designation as "foreign personal holding company"). Cayman law also requires that the shareholders draw up "memorandum of association" stating name of company, Cayman address, business purpose, a statement of limited liability, number and par value of shares, and the amount of capitalization. DOGGART, supra note 1, at 111; STARCHILD, supra note 13, at 45.

44 LANGER, supra note 3, at 103. These reports need not contain financial information. Id.

45 LANGER, supra note 2, at 97 (Supp. 1995) This amounts to about $700 in U.S currency. Id.

46 LANGER, supra note 3, at 128; STARCHILD, supra note 13, at 15 . Names of shareholders must be registered, but the register document may be kept anywhere in the world and there is no public disclosure of shareholders in exempted corporations. DOGGART, supra note 1, at 111; LANGER, supra note 2, ▀ 60, at 8.

47 DOGGART, supra note 1, at 111; KINSMAN, supra note 6, at 104; STARCHILD, supra note 13, at 15. Bearer shares are similar to bearer bo nds in that the owner is designated as whoever happens to be holding the instrument. KINSMAN, supra note 6, at 104.

48 KINSMAN, supra note 6, at 104. While a Board of Director meeting is required to be held in each calendar year, it may consist of "Alternate Directors" present on the Islands. Id.; LANGER, supra note 2, ▀ 60, at 11.

49 Id. at 105. By contrast, companies which do not receive the "non-resident" tag are required to conduct all business and keep all assets and accounts in Cayman currency. Id.

50 31 U.S.C.A. ▀5314 (Supp. 1996); 31 U.S.C.A. ▀5322 (Supp. 1996). See also The International Offshore Investor at http://www.shore.net/~icorp/ioi/nl.html (suggesting that tax authorities are sus picious of investments in tax havens and that it is wise to keep accurate records and declare all income).

51 See 15 U.S.C.A. ▀ 5 (1988) (declaring sale of any unregistered security illegal); ADEE, supra note 19, at A5 - A11 (1991) (explaining that Regulation S is not available in this situation unless selli ng to accredited investor as defined in Regulation D).

52 See supra note 28 and accompanying text (discussing possibility of private ownership records). Confidentiality allows the Cayman corporation owned by a U.S. citizen to be deemed a foreign issuer. See 17 C.F.R. ▀ 902(f) (2)(i) (1988) (stating that term "foreign issuer" no longer applies when more than 50 percent of outstanding voting securities is held of record by persons listed with domestic address).

53 See 17 C.F.R. ▀▀ 901-904 (1988) (regulating foreign securities transactions).

54 DOGGART, supra note 1, at 32.

55 See I.R.C. ▀871(i)(2)A) (exempting domestic income from gross income of non-resident alien); I.R.C. 865(g)(1)(B) (defining non-resident); I.R.C. ▀7701(a)(30) (defining U.S. person). But if the corporation engages in U.S. trade or business, then i ncome derived from such activity is taxable. I.R.C. ▀ 881; see ▀ 864(b) (defining "U.S. trade or business").

56 See Robert Lenzner and Phillippe Mao, "The New Refugees," FORBES, November 21, 1994, at 135 (stating that Merill Lynch has trust bank in Caymans with all assets held in Geneva, New York and London).

57 See LANGER, supra note 2, ▀16, at 1 (discussing government appropriation of assets after political upheaval). Cayman has a reputation for political stability. See LANGER, < I>supra note 2, ▀ 60, at 2 (stating that Cayman is politically and economically stable); STARCHILD, supra note 13, at 44 (stating that Cayman is extremely stable). But see DOGGART, supra note 1, at 2 (stating that drug trade's use of Cayman to launder money has threatened country's political stability).

58 12 U.S.C.A. ▀▀3401-22 (Supp. 1996) The Right to Privacy Act applies only to domestic institutions. 12 U.S.C.A ▀3401(1)(Supp. 1996); United States v. Mann, 829 F.2d 849, 851 (1987). The Fourth Amendment also applies only to domestic institutions. S ee United States v. Payner, 447 U.S. 727 (1980) (stating that defendant did not have enough knowledge of Bahamian law for expectation of privacy to arise); United States v. Miller 425 U.S. 435 (1976) (holding that bootlegger had no expectation of priv acy in bank records because they documented commercial transactions rather than confidential communications). There is no Fourth Amendment protected interest in Caymanian banks. United States v. Mann, 829 F.2d 849 (1987).

59 Tax professionals eschew a tax plan that requires keeping secrets from the IRS. For one thing, attorneys and accountants that help set up an illegal operation may themselves be liable. For another, there is no such thing as absolute secrecy. See Internet Privacy Law at http://www.netatty.com/privacy.html (describing technological difficulties of security).

60 STARCHILD, supra note 13, at 8.

61 Id.

62 See supra notes 25-26 and accompanying text (describing this method as tax deferral rather than tax reduction).

63 See supra notes 67-74 (noting recent high profile expatriations).

64 See I.R.C. ▀ 877 (providing for taxation of U.S. expatriates as aliens); Comment, "The Grand Illusion: A Neutral System for the Taxation of International Transactions," 75 VA. L. REV. 919, 920 (198 9) (stating that current tax system in U.S. encourages expatriation).

65 See Kathy M. Kristof, "Your Money; Money 101," LOS ANGELES TIMES, April 14, 1996, at D2 (listing renunciation among top ten radical steps to tax savings).

66 See "House OKs Health Insurance Tax Break," THE AUSTIN AMERICAN-STATESMAN, March 31, 1995, at D8 (recounting Treasury Department statement). But see Lenzner and Mao, supra note 56, at 131 (stating that persons with $3 million could benefit from renunciation of citizenship).

67 Kate Bohner Lewis, "Getty Outta Here," FORBES, January 1, 1996, at 19.

68 "Citizen Switchers Would Pay Capital Gains," March 28, 1995, available in LEXIS, Nexis Library, WIRES file.

69 Roger Simon, "Some Dance to the Music But Duck Paying the Piper," THE BALTIMORE SUN, April 21, 1995 at 2A; Jennifer Gonnerman, "Hey, Big Spender! Follow the Money," THE VILLAGE VOICE, February 6, 1996, at 20.

70 Lenzner and Mao, supra note 56, at 131.

71 Bill Lodge, "Prosecutor calls Minns Flight Risk; Defense Attorneys seek Millionaire's release," THE DALLAS MORNING NEWS, July 26, 1994 at 24A.

72 Jennifer Lin, "Soup Heir in Ireland Keeps Pot of Gold From Uncle Sam," ARKANSAS DEMOCRAT-GAZETTE, July 16, 1995, at 5A.

73 Brigid McMenamin, "Flight Capital," FORBES, February 28, 1994, at 55.

74 Rex Nutting, "Nobody Defends Unpatriotic Tax Cheats," BC CYCLE, July 11, 1995.

75 Lucinda Harper, "Treasury Takes Aim at Rich Who Renounce Citizenship," WALL STREET JOURNAL, February 7, 1995, at B1. In 1995, Congress considered four different measures to close the loophole. Ian Christopher McCaleb, "Expatriate Tax Measure Passes Muster," BC CYCLE, June 13, 1995. Under a Clinton-proposed measure, Americans who renounce their citizenship would have to pay immediate taxes on long-term a ssets. James Risen, "Administration Takes Aim On Tax Loophole Used by Rich," LOS ANGELES TIMES, February 7, 1995, at A1. The proposed measure exempted resident aliens. See Joe Haberstroh, "Stop & Go; A Weekly Guide to the Roads & Rails on Long Island," NEWSDAY (Nassau and Suffolk Edition) April 2, 1995, at A29 (describing amendment by Senator Bill Bradley). The U.S. Senate dropped the measure in order to win passage of a health insurance tax deduction. "House OKs Health Insurance Tax Break," THE AUSTIN AMERICAN-STATESMAN, supra note 66, at D8. Congress had not closed the loophole as of January 5, 1996. Edward M. Kennedy, Press Release, January 5, 1996, available in LEXIS, Nexis Library, WIRES file. President Clinton attacked the loophole again in 1996, proposing an "exi t tax." Register News Services, "Clinton Tax Cuts: Who Gains Most; Q&A: Major Beneficiaries Would Be College-Tuition Payers, Parents," THE ORANGE COUNTY REGISTER, March 20, 1996, at C01; Dave Skidmore, "Clinton's Tax Plan Favors the Little Guy," THE CHARLESTON GAZETTE, March 20, 1996 at 1A. Countries that have eliminated similar tax loophole s include Canada, Germany, Denmark, Sweden, Norway, and Finland. Gene Fadness, "Cheers to Robert Kloack, Siddoway," IDAHO FALLS POST REGISTER, April 21, 1995, at A1 0.

76 See Marianne Means, "Billionaires' Loophole," THE TAMPA TRIBUNE, April 14, 1995, at 11 (calling loophole "outrageous" and estimating $1.3 billion in lost revenue to fe deral treasury); Peggy Studney, "Humanity Void?," CHICAGO TRIBUNE, April 20, 1995, at 20 (describing defense of loophole as "unbelievable"); Simon, supra, note 69, at 2 A (evaluating expatriation of James Everett Dingman); see also Carol Moseley-Braun, Press Release, April 10, 1995, available in LEXIS, Nexis Library, WIRES file (opining that U.S. Senate should not have dropped citizenship renunciation provisions f rom bill). But see Michael Noer, "The Long Arm of the Taxman," FORBES, August 14, 1995, at 12 (suggesting that Congress eliminate incentive to leave by lowering taxes); Robert Nova, "Why Offer A Taxbreak to Redst one?," THE BUFFALO NEWS, February 20, 1995, at 3 (expressing doubt at Constitutionality of proposed bill); "Make Rich Pay If They Give Up U.S. Citizenship," THE ORLANDO SENTINEL, March 28, 1995, at A5 (mentioning concerns about human rights implications of imposing what may appear to outsiders to be punitive penalty on citizens who wish to leave); Marc E. Babej, Marc Ballo n, Graham Button, Kerry A. Dolan, David S. Fondiller and Esther Wachs Brook, "John T. Dorrance III," FORBES, July 17, 1995 at 201 (describing expatriation as "voting with . . . passport against U.S. taxes").

77 See "JCT Study Says Clinton Bill Could Increase Expatriation," NATIONAL JOURNAL'S CONGRESS DAILY, June 2, 1995 (reporting on 300 page study and concluding th at proposed legislation would have caused more problems than it solved); "Millionaire Tax Claims Inflated, Study Reveals," CHARLESTON DAILY MAIL, June 5, 1995, at P (suggesting that Pr esident Clinton is guilty of misleading Congress). But see Evelyn Tan Powers, "Study Disputes White House on Rich Expats," USA TODAY, June 5, 1995 at 1A (quoting House Democrats critical of study); Francis W. Whalen, "Flat Tax Might Help, But Not Forbes'," THE PALM BEACH POST, February 19, 1996, at 21A (stating that around 30 multibillionaires are preparing to renounce citizenshi p).

78 See generally LANGER, supra note 2, ▀ 5, at 1-9 (discussing abandonment of U.S. citizenship and residency).

79 I.R.C. ▀▀ 861(a)(1)(A), 861(c), 2105(b).

80 I.R.C. ▀877.

81 Lenzner and Mao, supra note 56, at 137.

82 BLACK'S LAW DICTIONARY 782 (5th ed. 1983).

83 STARCHILD, supra note 13, at 8.

84 Id.

85 Id.

86 See RESTATEMENT (SECOND) OF TRUSTS ▀ 17 (describing five methods of setting up trust: 1) by declaration by owner of property; 2) by transfer inter vivos by owner of property to another pe rson; 3) by transfer to trustee in will of owner; 4) by appointment of trustee; 5) by promise to beneficiary).

87 See supra notes 56-58 and accompanying text (discussing advantages of holding assets in U.S.).

85 See Lenzner and Mao, supra note 56, at 136 (quoting Robert C. Lawrence III, an expert on repatriation).

89 See id. (quoting Lawrence as stating that foreign trust and private investment company act in tandem as estate tax shield).

90 See I.R.C. ▀ 7701(b) (setting forth three tests for U.S. residency); LANGER, supra note 2, ▀ 5, at 1 (stating necessity of both expatriation and non-residency in avoiding U.S. taxation); McMenamin, supra note 73, at 55 (stating that moving abroad without renouncing citizenship or cheating on taxes accomplishes no tax savings). Merely working and living abroad without renouncing citizenship eliminates taxes on the first $70,0 00 of income. I.R.C. ▀ 911; LANGER, supra note 2, ▀ 5, at 1; Kristof, supra note 65, at D2.

91 LANGER, supra note 54, at 39.

92 But see Simon, supra note 69, at 2A (stating erroneously that Dingman can travel back and forth as much as he wants because his wife and three children maintained their citizenship).

93 I.R.C. ▀▀ 877, 2107, 2501(a)(3); LANGER, supra note 2, ▀ 5, at 2; Lenzner and Mao, supra note 56, at 133. But see Rex Nutting, "Nobody Defends Unpatriotic Tax Cheats," BC CYCLE, July 11, 1995 (stating that Assistant Treasury Secretary Leslie Samuels regards these taxes as practically uncollectable because person would no longer be under U.S. jurisdiction).

94 Kristof, supra note 65, at D2.

95 But see James N. Baker, Alan M. Field and Mary Hager, "World Citizen," NEWSWEEK, May 1, 1978, at 14 (stating that Garry Davis issued himself and 40,000 other people citizenship of world passport). See generally GARRY DAVIS, PASSPORT TO FREEDOM: A GUIDE FOR WORLD CITIZENS (1992) (dis cussing how to obtain "Citizen of the World" passport).

96 Lenzner and Mao, supra note 56, at 135.

97 See PrimeTime Live (ABC television broadcast, February 22, 1995) (featuring William Zabel, expert at helping U.S. expatriates find citizenship in other countries).

98 McMenamin, supra note 73, at 56.

99 Id. Moving back to the United States, of course, would accomplish no U.S. tax savings because the U.S. taxes all residents. See I.R.C. ▀ 61(a) (imposing income tax on every individual not specifically exempted by Code).

100 McMenamin, supra note 73, at 56.

101 LANGER, supra note 3, at 4; KINSMAN supra note 6, at 246.

102 See In re Grand Jury proceedings: John Doe, 831 F. 2d 222, 224 n.3 (1987) (quoting Doe's accountant regarding Doe's misconception).

103 I.R.C. ▀862(a)(1); Lenzner and Mao, supra note 56, at 136; see McMenamin, supra note 73, at 56 (stating that moving money into foreign bank saves nothing in U.S. income taxes).

104 Form 1040, Schedule B, Line 11a.

105 Schedule B instructions, Line 11a exceptions.

106 Id. But see Lenzner and Mao, supra note 56, at 134 (stating that some Americans do omit mention of offshore accounts on tax returns).

107 DOGGART, supra note 1, at 25; LANGER, supra note 3, at 104. The IRS Office of International Operations declared that Cayman was the most secretive tax haven in the world. DOGGART, supra note 1, at 83. Cayman passed a secrecy law providing for criminal penalties for persons trading in confidential information. KINSMAN supra note 6, a t 106-7. But see United States v. Davis, 767 F. 2d 1025 (2d Cir. 1985) (holding that district court may enjoin U.S. citizen from litigating in Cayman for enforcement of secrecy). Fourth Amendment concerns may not apply. See supra note 40 and accompanying text (discussing Fourth Amendment protection over foreign and domestic banks). In addition, Cayman and the United States have a treaty under which Cayman agreed to breach its confidentiality laws for cases in which c ompanies or individuals are involved in drug dealing, insider trading, bribery of foreign officials, and racketeering. DOGGART, supra note 1, at 112-13. The treaty also requires documentation of all deposits exceeding US$10,000. Id at 112.

108 See I.R.C. ▀ 7201 (stating that attempts to evade or defeat tax are punishable by $100,000 fine, five years imprisonment, or both); I.R.C. ▀ 7206 (stating that filing a false tax return is punishable by $100,000 fine, three years imprisonment, or both, plus costs of prosecution).

109 I.R.C. ▀ 6501.

110 I.R.C. ▀6501(a).

111 I.R.C. ▀6501(c).

112 31 U.S.C.A. ▀5314 (1983). Violation may result in $250,000 fine or five years imprisonment, or both. 31 U.S.C.A. ▀5322(a).

113 See 31 U.S.C.A ▀ 5322(b) (Supp. 1996) (specifying additional penalties for illegal activity involving more than $100,000 in 12 month period).

114 See I.R.C. ▀ 7201 (stating that attempts to evade or defeat tax are punishable by $100,000 fine, five years imprisonment, or both); see also supra note 40 and accompanying text (discussing lack of Fourth Amendment protec tion for offshore bank accounts).

115 LANGER, supra note 3, at 12; see Sen. Pete V. Domenici, supra note 7, at 273 (stating that countries╝ method of taxation deeply influences economic growth).

116 TREASURY, supra note 10, at 8.

117 See id. at 8-9 (stating that Internal Revenue Code has loopholes unintended by Congress).

118 Id.

119 See DOGGART, supra note 1, at 80 (discussing three additions to Internal Revenue Code that attempted to close loophole). But see TREASURY, supra note 10, at 8 (opining that deferral of U.S. tax on unrepatriated earnings of foreign subsidiary controlled by U.S. resident was specifically intended by Congress). In 1983, Congress asked the Treasury Department to report on the use of tax havens in the Caribbean Basin. Id. at 1. This request indicates a concern on the part of the U.S. government that tax havens may provide a shelter for both legally and illegally acquired funds and the avoidance or evasion of U.S. income taxes. Id. Co ngress has also enacted stringent reporting requirements so that the IRS can keep track of capital flowing into and out of the U.S. See 31 U.S.C.A. ▀▀ 5316, 5321, 5322 (Supp. 1996) (providing for criminal and civil penalties for failure to notify the government when importing or exporting more than US$10,000 of monetary instruments).

120 See Lenzner and Mao, supra note 56, at 136 (suggesting that IRS is not happy with expatriates setting up foreign trusts).

121 See supra notes 35-38 and accompanying text (discussing private letter ruling and how to get one).

122 See TREASURY, supra note 10, at 8 (declaring this to be so because terms are not well defined, law is imprecise and information incomplete).

123 See id. at 10 (explaining that proper administration of subpart F and ▀ 482 often require access to books and records located outside U.S.). Statistical data indicates that unavailable records led to discontinuation of 8% of IRS criminal investig ations between January, 1978 through August, 1983. Id. at 34. The Tax Equity and Fiscal Responsibility Act of 1982 created the Formal Document Request. Id. at 40. Taxpayers must respond to a Formal Document Request within 90 days or are estopped from introducing the requested documents at subsequent civil proceedings. I.R.C. ▀ 982.

124 But see I.R.C. ▀ 6038 (providing that U.S. citizens must furnish such documents as Secretary of Treasury shall require by regulation); STARCHILD, supra note 13, at 20-21 (listing eight different forms that must be filed by taxpayers setting up and maintaining foreign corporations).

125 The IRS can allocate ownership of the assets to the owner of the first corporation. I.R.C. ▀▀ 482, 958.

126 See Hines and Rice, supra note 6, at 31 (stating that tax revenue is not only societal benefit of locating profits in United States).

127 See I.R.C. ▀▀ 861(a)(1)(A), 861(c), 2105(b) (specifying that interest income of non-resident aliens is not subject to U.S. income tax).

128 See DAVID J. PYLE, TAX EVASION AND THE BLACK ECONOMY, 119-29 (1989) (discussing tax &qu ot;games" played by small groups of individuals in three separate psychology experiments).

129 See id. (stating that incentive to cheat increased when players were told that others were cheating or that others were being taxed at lesser rate).

130 See supra note 7 and accompanying text (stating that Congress uses Internal Revenue Code to influence economy).