Tax Scam: The Florida Real Estate Connection
(Posted December 27, 2011 07:40 am)
By Les Coleman
MIAMI, FL - The Miami Herald reports that Florida is the number one state in the country for international residential real estate sales, with almost one-third of the nation's foreign-backed property transactions. Most of the deals are in cash. However, the State of Florida and the federal government may be left holding the bag, according to this investigative report from Les Coleman.
Some investors in the Florida housing market have
found a way to avoid paying everything from state title
transfer fees to federal capital gains taxes. How? By
going off-shore, to places like a Caribbean island
called Nevis.
The domestic housing bust has made Florida properties
very appealing to overseas investors wanting to buy a
house or condo in the Sunshine State, and 76 percent of
them pay in cash. State and federal governments normally
would get their cut of each transaction in the form of
fees and capital gains taxes. However, a clever loophole
is leaving the tax man's pockets empty when investors
set up a shell company in an off-shore tax haven to buy
that Florida condo.
Tax avoidance is the name of the game
R.M. Woodnutt, a former off-shore agent in Gibraltar,
says tax avoidance is the name of the game.
"If you transfer the stock in the offshore company and
do not actually sell the company or the real estate
property outright, then you certainly avoid paying any
taxes on the transaction. That is the beauty of all
this."
The Miami International Real Estate Congress claims
foreign investment in South Florida is growing, and
industry experts are predicting that next year, in 2012,
there will be even more international interest in the
area.
Creating an offshore company is simple, and can even be
done online. Offshore Formations 24-7 specializes in
creating shell companies to hide individual identities
and assets. It is based in Nevis, a little Caribbean
island just 200 miles south of Puerto Rico.
Links of interest:
•
Offshore Formations 24-7
•
Nevis Island
•
Barclays Wealth
"A lot of people like Nevis 'cause it's quick
and easy: three-to-five day turnaround to get a company
back. For an LLC it costs only $1,295, a corporation is
only $1,695. The only thing you need is name of the
company, who the director will be, and where to send
it."
The offshore company buys the property in Florida. When
it goes to unload it, the Bearer Certificates of company
ownership are transferred to the new owners. There is no
record in Florida of a sell-buy transaction, so no
transfer fees or capital gains taxes are ever paid.
Rosa Schecter, an international real estate attorney in
Coral Gables, points out that buying Florida property
normally requires slogging through a lot of red tape and
paying thousands in taxes and fees.
"There are different kinds of taxes. There are transfer
taxes that are associated with every real estate
transaction in Florida that you have to pay on a deed;
there also are intangible taxes that are due on
promissory notes, and documentary stamp taxes. If a
property is sold and there is gain on it, obviously
there is tax to be paid on that gain."
Such taxes and fees are never recorded because, as far
as Florida is concerned, the property never changed
hands - the deed is still recorded in the offshore
company's name. What did change hands was the stock in
the offshore company, a transaction that need not be
disclosed to anyone.
Most overseas buyers do not qualify for an exemption
from capital gains taxes, since the properties are not
usually their primary residence. Forming an offshore
company to purchase a house in Florida hides any record
of the property changing hands, thus no capital gains
are recorded on the tax rolls.
As one offshore agent we'll call "Manny" told us, there
are advantages for American citizens, too, like dodging
debts, child support or alimony payments.
"So a guy pays cash and he titles the real estate in the
name of the off-shore company, and he never owned that
property before, then his creditors come looking for the
property and they can't find it because it doesn't show
up under his name."
The question is, will the state and federal treasuries
ever see a penny? Several state and federal law
enforcement agencies have been made aware of this
off-shore scheme.
