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Tax Carnival #58: TaxtoberFest 2009

Offshore haven heresy: Taxes!

You know the global economy is bad when an iconic tax haven is contemplating, for the first time, collecting taxes.

The Cayman Islands, long known in story and song as the go-to place to hide income from other nation's tax collectors, has been told by British officials who oversee the offshore financial nation to impose spending cuts and consider some form of direct taxation on business.

Rum Point Cayman Islands_Cayman Islands Toursim

According to Offshore Haven Considers a Heresy: Taxation in today's New York Times, the Caymans are "a tax-free home for 9,253 hedge funds and many more banks and companies that pay small fees to establish the Caymans as their official domicile while operating mostly elsewhere around the world."

That's worked very well for the islands and its high-rolling customers ... until this summer.

"In June, the full effect of the financial crisis touched shore with the effect of a hurricane. A drop in financial and tourism revenue transformed a projected surplus into a deficit of about $100 million — a huge gap for an annual budget of some $800 million — and the leader of the Cayman government, W. McKeeva Bush, warned of a fiscal crisis," reports the Times.

Name note aside: The Caymans' government is headed by W. McKeeva Bush. Really? Is another W. Bush as the leader of a country merely a coincidence or something that demands more genealogical research?

Add to the mix the growing global pressure for a system-wide crackdown on offshore tax havens -- or as the Caymans prefer to call themselves, a tax-neutral portal -- and you have the makings of an island financial disaster.

Same old, same old: In some ways the Caymans are starting to resemble fiscally troubled U.S. jurisdictions.

A construction company recently stopped work on a school, saying payments had been delayed, according to the Times. *Cough, California, cough*

Public employees are hearing that they will have to take pay cuts to keep their jobs. *Cough, Birmingham, Ala., cough*

And the publisher of The Cayman Net News told the Times that the Cayman government owes his newspaper more than $50,000 in advertising an printing costs.

Still time to tell the IRS: If you have a secret financial account outside the United States, you still have time to tell the IRS all about it.

Oct. 15 is the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore shelters. If you don't reveal the accounts' existence to the IRS by then, you could face severe civil penalties and, where applicable, possible criminal prosecution.

You or your tax pro can start the voluntary account disclosure ball rolling by calling your local IRS Criminal Investigation office. You also can call the IRS Voluntary Disclosure Hotline at (215) 516-4777. No, it's not toll-free, but if you're stashing cash offshore, you can afford it.

You can find additional details on the voluntary disclosure program and process at the IRS' special Web page.

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