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Excerpted from

The Great American Tax Dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You

By ,

Ronald D. Preston knows all about engaging in activities that will cause harm to the U.S. tax system. That's his business. An American living in self-imposed exile, Preston is the impresario behind an outfit in Costa Rica called the Magna Charta Society, whose mission undermines tax collection in the United States.

Like offshore promoters everywhere, Preston is getting a big assist from an idea that is spreading like an epidemic through the tropics and that is going to be increasingly bad news for the U.S. Treasury. The idea goes something like this: For years, wealthy Americans have been making out like bandits by sending their money out of the country; now it's time for average Americans to do the same.

"Do what the rich do," Preston advises Americans who are considering sending assets offshore. "Take the lion's share of your wealth outside your home country's legal reach. Watch your investments or retirement fund compound tax free in a Tax Heaven environment, safe from attacks by potential creditors, even tax collectors."

Preston operates from San Jose, the capital of Costa Rica, which has become a magnet for offshore money just like its Central American neighbors Belize and Panama, and the Caribbean islands to the east. Named for the historic document English nobles foisted upon an unwilling King John in 1215, Preston's Magna Charta Society is dedicated to reining in the power of government - in this case, the power to collect taxes.

Inviting people to cheat on their taxes once was done with a certain amount of discretion or secrecy, but Preston proves those days are gone forever. "Placing assets outside one's home country jurisdiction, beyond the reach of the courts is the essence of this program," says a society circular. "You never lose control. Eliminates probate, estate taxes, and income taxes."

To bring about this tax-free state of bliss, Preston peddles a smorgasbord of financial products: international business corporations in the British Virgin Islands, an offshore trust (a "financial fortress" shielding your identity), and an offshore bank account, which Preston will set up for you right there in Costa Rica. To achieve maximum protection and tax minimization, Preston recommends all three. He describes his role in bringing all these things to pass as a little like being a symphonic conductor. "All I do is orchestrate [this process.]"

Preston says he got his start in the early 1980s in Seattle, putting together offshore asset-protection trusts for doctors and other professionals. A native of the Pacific Northwest from a "lower-middle-class family," Preston lied about his age and enlisted in the Army when he was fourteen, according to a biographical profile.16 He was soon sent to Korea, where, by his account, he was among the few to survive Pork Chop Hill, one of the bloodiest and most famous battles of the Korean War, later dramatized in a movie starring Gregory Peck.

After the war, Preston claims to have been variously a deputy sheriff, an entrepreneur, and then an offshore-trust developer for clients of a large Seattle law firm. He soon ran afoul of the IRS because "we were stupidly operating in the United States." After waging a losing battle with the agency, he decided the time was right to actually move offshore.

"If we were going to offer asset protection, we better do it the right way and that means you get the hell out of the United States and you do it where you're domiciled," he said. "People who offer offshore services inside the States are crazy. We learned the hard way."

He went first to Belize, where he established the Magna Charta Society in 1992. He also chartered two trusts, Avalon Trust and Central American Trust. Everything went well in Belize and business boomed, he said, until 1995, when he became disenchanted with the Belizean government and moved his operations to Costa Rica.

The heart of Preston's pitch is a strategy that he maintains will outwit the most determined revenue agent and allow Americans, and anyone else for that matter, to keep their money out of the hands of tax collectors, creditors-indeed, anyone at all.

Send Preston as little as $1,000 and he'll set you up offshore. He starts by buying a share of stock in something called PANAFIN, a Costa Rican financial services agency, PANAFIN in turn opens a numbered account for you in the Banco Del Pacifico, a Costa Rican chartered bank with offices in downtown San Jose, an account that promises "absolute privacy," says Preston. "Our clients' accounts are like Swiss secrecy accounts, numbered, therefore no client's name resides within our office not in our companies."

You're then issued a PANAFIN debit card, which Preston calls a MonyCard. With this you make deposits and withdrawals. Because the system is based on a debit card, the owner's name need not appear on the card. "Your name is not exposed," Preston assures. "MonyCard is a numbered debit card in the Electron (Visa) System. Your name is not shown on the face of the MonyCard, unless you specifically request it."

Deposits are made by the cardholder with Citibank, New York, with a stipulation that they be transferred to the numbered account at the Banco Del Pacifico, one of the myriad correspondent banks used by Citibank around the world.

But isn't it illegal to send money out of the United States and not report it to the IRS? Ah, that's the beauty of it, at least in Preston's mind. He claims: "Funding... is accomplished by depositing funds at Citibank N.A. New York, where funds remain ... in the in-transit account of Banco Del Pacifico."

Since the "deposited funds never leave... New York," Preston maintains, "there is never a need to send money offshore creating a paper trail With MonyCard you will never have to repatriate funds. Therefore, foreign account reporting is not required by government and no taxes are owed nor due." In addition to cash, Preston also encourages U.S. taxpayers to deposit other holdings into their accounts, such as stocks and any other interest or dividend-bearing assets. "All interest that accrues is foreign-earned interest," he claims, "and not subject to U.S. taxes It doesn't get any better than this.""

Just how successful Preston has been is anybody's guess. He says his business is booming. Are more and more Americans going offshore? "Absolutely," he answers. "One short sentence summarizes what's going on. The tighter the government squeezes you, the harder you are going to look for an out, and you're being squeezed like you can't believe."

Preston pauses in his diatribe against taxes. "I love my country," he says with passion. "I just don't have any love for the government."




Tags: Career & Money

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