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WHERE CAN YOU AFFORD TO RETIRE TAX FREE?           WHY ARE SO MANY OF THE MIDDLE CLASS LEAVING THE US & EUROPE?

Our March 2003 Newsletter:
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E-Gold and other Fiat Currency alternatives.  College Tuition on the Rise for Americans, Civil Liberties and the so-called War on Terrorism.
John Schroder - Author of The Ascot Advisory News Letter Bulletin and Numerous Expatriate  Articles

INVESTMENT NEWS and NOTES:
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We have received a large number of telephone calls and letters this month from clients who are very concerned about the declining value of the US Dollar, the US Stock Market (which seems to want to stay below the 8000 level) and of course low interest rates as well.  In short, clients want to know - What Do We Do?
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A good question, but the real answer is that it depends upon a number of factors that affect each person individually.  For example, some clients have asked about keeping funds in Dominican Pesos, considering the higher interest rates (up to 25%).  However, the problem with this is the exchange rate risk, meaning the idea that the peso has in fact consistently devalued against the dollar at an average yearly rate (historically) of about 5%, and even much more so lately.  So, for those clients not living in the Dominican Republic, or who do not have any intention to convert that into a hard asset later on, such as real estate, I would advise against consider the Peso as a currency play against the Dollar.  However, for those clients living in the country, then of course the equivalent of US$45,000 invested in Pesos could provide enough of a tax-free monthly income to cover basic living expenses (rent, utility bills, etc.).  US$80,000 invested in Pesos would provide a very comfortable monthly income indeed (with the idea that you keep your other funds denominated in US Dollars).
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The better idea if someone wants to hedge against the Dollar, would be to consider a stronger currency, not a weaker one.  The Euro is one such currency, although investors should not expect interest rates on time deposits in Euros to be too much higher than US interest rates, as rates are fairly low in Europe at the moment also.  The best time to have switched into Euros was December 2001 (which we advised in our Jan. 2002 newsletter), when the Euro was trading at about 85 US cents for one US Dollar.  Today the Euro is worth US$1.07 and investors that made such a move would have earned roughly 20% just on the currency exchange.  However, for most people, this can be a risky move, as there is always currency exchange risk anytime you invest in another currency.
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The most conservative approach, both for income and to maintain the purchasing power of your money, would be to invest in your home currency and try to earn the highest rate possible to keep up (coupled with safety of principal of course).  In this regard, the Dominican Republic still remains to be an attractive place to invest US Dollars, considering the rates (up to 10%) and also considering interest earned is 100% locally tax-free.  The Guardian US Dollar Cash Reserves (Money Market Fund) has been yielding 10% since about November and it is believed that this will continue in the short-term (at least through June) based upon the current interest rate environment.  
However, local bank certificates of deposit may offer anywhere from 6% or 7% for US$10,000 deposits and perhaps up to 9% for US$100,000 or more.  US Dollar savings accounts currently pay about 4% interest.
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With this topic or theme in mind, some clients are fearful about investing in other countries, with the fear that some governments may elect to confiscate US Dollar deposits and force conversion into their own local currency, which was the case in Venezuela.  However, especially when we bring the Dominican Republic into such a discussion, one must realize that each country is very different and factors or motivations are different as well.  For example, the current leader of Venezuela is for sure a socialist, and one must remember that Venezuela is a major oil-producing nation.  For this reason, they could care less about the impact of such a move and foreign investment is not so important.  For the Dominican Republic however, the reverse is true, and foreign investor confidence is of the utmost importance.  Taking the Bahamas as just one example in regards to a case study as to what could happen when a government does some foolish things in terms of foreign investors, it has been estimated that over 70 banks and financial service companies have left the Bahamas since the year 2000 (not to mention roughly 45% of the total bank deposits as well).  And again, this had to do with the Bahamas decision to start turning over bank account information to the US government, and not any kind of issues to do with confiscating accounts of foreigners or the like.  So, the point is, a simple decision to allow access to banking records caused such a reaction.  You can just imagine what would happen if it were something even worse.  With about 40% to 45% of the local banking deposits in the Dominican Republic estimated to be owned by foreigners, there is a very strong incentive indeed to keep the status quo just as it is (no foreign currency restrictions, tax-free banking, etc.).
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For those clients interested in reading some recent news articles regarding the fate of the US dollar in world markets - please see below (which is why, in the least, getting the best rate of return for US Dollar deposits as a way to hedge against the declining value is of such importance):
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US DOLLAR FALLS AGAINST RIVALS - February 27, 2003
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http://hoovnews.hoovers.com/fp.asp?layout=displaynews&doc
_id=NR20030227670.4_7eb6001151af8833
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INDIA RUPEE STRENGTHENS AGAINST US DOLLAR SECOND DAY IN A ROW - February 26, 2003
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http://timesofindia.indiatimes.com/cms.dll/html/uncomp/articleshow?artid=38680886
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EURO REMAINS UNDERVALUED AGAINST US DOLLAR - The Irish Examiner Newspaper
 - February 25, 2003
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http://www.online.ie/business/irish_examiner/viewer.adp?article=1957023
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AUSSIE DOLLAR BREAKS TO 60 US CENTS BARRIER - A NEW TWO AND HALF YEAR HIGH - February 25, 2003
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http://www.abc.net.au/news/business/2003/02/item20030225071016_1.htm
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IN THE NEWS:
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THE FATF AT IT AGAIN - NOW THE PHILIPPINES IS ON THE CHOPPING BLOCK: Manila in race to avoid laundering sanctions - Monday, February 03, 2003
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The Philippines is racing against time to avoid money-laundering sanctions that could put a serious dent in its economy and make it a financial pariah.  The prescribed changes have angered some Philippine lawmakers over perceived threats to national sovereignty, while certain members of the powerful elite resist the idea of too strong a spotlight shining on their financial dealings.  Offshore trade and banking would be more time-consuming and costly, potentially driving away foreign investment.  Damage to the economy is not the only worry for those who favor falling in line with the FATF.
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http://www.tradearabia.com/news/sections/News.asp?Article=47933&Sn=INTBIZ
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Along the same lines, a reader sent in the following link regarding the Cayman Islands.  An interesting commentary and read, for what it's worth:
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http://www.therationalradical.com/dsep/1201/cayman-islands.htm
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DUDE - YOU'RE GETTING A POLICE CRIMINAL RECORD:  Dell Dude' released after marijuana arrest - Deal would clear his record after year of good behavior - Tuesday, February 11, 2003 Posted: 8:32 AM  
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NEW YORK (CNN) -- Benjamin Curtis, better known as the "Dell Dude" from the computer company's television commercials, was released from jail Monday after being arrested on Manhattan's Lower East Side on suspicion of trying to buy marijuana
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http://www.cnn.com/2003/LAW/02/10/dell.dude.arrest/index.html
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EDITORS NOTES:  Is this just another popular television figure arrested on drug charges?  Perhaps, but it is a trend and sign of the times.  The United States currently has some of the highest statistics for alcohol and drug abuse amount the age brackets as young as 12 years old up, going up to age 35.   The question remains why?  If the demand for drugs goes away, so does the drug dealers as a simple function of the free market dynamic at work.  Is the problem those that manufacture and distribute drugs, or is the real problem the fact that people in American Society feel the need to buy them?  Perhaps a surprise to some, the highest percentage of drug use and abuse (and the fastest growing percentage of users) are not the poor inner city kids, but the well to do and well educated suburban dwellers.  Is the US becoming a nation of drug abusers, and considering the statistics, is it possible that these very same well educated young people using them will be running the country in the future?  I still remember a comment passed on to me by a well-known floor trader at the New York Stock Exchange during the early 1980's.  He told me:  You know - some days there is more cocaine exchanged here than stocks.
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IN THE WHY AMERICANS ARE LEAVING THE US CORNER (and expatriating elsewhere) - The Following Article Titled - The Alternative Minimum Tax: Out of Control - may explain part of the reason:
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The practice of requiring well-to-do Americans to pay a minimum tax was developed more than three decades ago. In January 1969, then-Treasury Secretary Joseph W. Barr informed Congress that 155 individual taxpayers with incomes exceeding $200,000 had paid no federal income tax in 1966. The news set off a political firestorm. Members of Congress were deluged with more constituent letters about the untaxed 155 in 1969 than about the Vietnam War. Later that year, Congress created a minimum tax to prevent wealthy individuals from taking undue advantage of tax laws to reduce or eliminate their federal income tax liability.
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Historically, both the original minimum tax and the individual alternative minimum tax (AMT) that replaced it applied to only a small minority of high-income households. But under current law, this "class tax" will soon be a "mass tax." Current projections show the number of AMT taxpayers skyrocketing from 1 million in 1999 to 36 million in 2010. Without reform, virtually all upper-middle-class families with two or more children will be paying the AMT by decade's end. This expansion will occur because the AMT is not indexed for inflation and because the 2001 tax cut reduced the regular income tax without making long-term cuts to the AMT.  Under current law, about 36 million people will be on the AMT by 2010, almost 14 times as many as in 2001. Without EGTRRA, the number of AMT taxpayers in 2010 would have been about 18 million. If the AMT had been indexed for inflation along with the regular income tax in 1981, and if EGTRRA had not been enacted in 2001, only about 300,000 people would have to pay the AMT in 2010.
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http://taxpolicycenter.org/research/Topic.cfm?PubID=310565
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EDITORS NOTES:  The Problem?  According to the US Federal Government, and consequently the IRS, if you earn a six-figure salary (household income), you are super-wealthy and deserve to be squeezed and taxed to death.  However, not taken into account are things such as cost of living, and the REAL US inflation (not the reported figures).  Therefore, a family with mortgage payments, cost of medicine and health care, two kids in a state college costing US$25,000 per year in tuition (for each one) and so on, are probably just keeping their head above water in respect to maintaining the so-called middle class American Dream or lifestyle.  2010 is not that far away.  Are you ready for even more taxes because of it?         
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GET READY FOR EVEN HIGHER COLLEGE TUITION:  States raising tuition to balance budgets - Wednesday, February 12, 2003  (AP) -- Cash-strapped states from coast to coast are weighing hefty tuition increases for public colleges and universities, prompting experts to wonder aloud if state schools are pricing themselves out of the market for most students.
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http://www.cnn.com/2003/EDUCATION/02/12/tuition.hikes.ap/index.html
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It's Only Money - US Treasury Reports that the US Federal Government Could be broke by the end of February 2003 - What? Again?
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WASHINGTON (AP) -- The government is expected to hit the $6.4 trillion ceiling on the national debt around February 20, the Treasury Department said Wednesday, renewing its call for Congress to boost the government's borrowing authority.   If Congress doesn't boost the government's borrowing authority, Treasury can juggle funds for a while AT LEAST TO DODGE A DEFAULT ON THE NATIONAL DEBT. Treasury moved billions of dollars around to do just that on two occasions last year.  If the statutory debt ceiling is not raised, the Treasury will have to begin to use a number of stopgap devices -- some costly -- to manage debt subject to limit, which have been previously utilized under established legal authority, Treasury said Wednesday.
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http://www.cnn.com/2003/ALLPOLITICS/02/05/debt.limit.ap/index.html
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EDITORS NOTES:  Juggle funds to at least to dodge a default on the US National Debt?  Why is the even possibility of defaulting brought up?  Why was a juggling done twice last year to avoid a default?  How bad are things really - economically speaking?  Are we talking about the USA or Bangladesh?  Perhaps Bangladesh is looking pretty good in comparison.
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For a very interesting perspective on Iraq, Europe and the new Euro Currency - The following offers some very interesting arguments and information (sent in by a reader).
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AMERICA'S WAR AGAINST EUROPE - By Paul Harris - February 19, 2003
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Britain's entry into the European Union is inevitable; Scandinavia will join sooner rather than later. Already, even without those countries, there will be 10 new member nations in May 2004, which will swell the GDP of the E.U. to about $9.6 trillion with 450 million people as against $10.5 trillion and 280 million people in the United States. This represents a formidable competing block for the United States but the situation is significantly more complex than what is revealed just by those numbers. And much of it hinges on the future of Iraq.
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I have written before, as have many others, that this upcoming war is about oil. To be sure there are other reasons, but oil is the single most impelling force. Not in the way you might expect, however. It isn't so much that there are believed to be huge untapped oil reserves in Iraq, untapped only due to outdated technology; it isn't so much an American desire to get its grubby hands on that oil; it is much more a question of whose grubby hands the Americans want to keep it out of.
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What precipitated all of this was not September 11, nor a sudden realization that Saddam was still a nasty guy, nor just the change in leadership in the United States. What precipitated it was Iraq's November 6, 2000 switch to the euro as the currency for its oil transactions. At the time of the switch, it might have seemed daft that Iraq was giving up such a lot of oil revenue to make a political statement. But that political statement has been made and the steady depreciation of the dollar against the euro since then means that Iraq has derived good profits from switching its reserve and transaction currencies. The euro has gained about 17 percent against the dollar since that time, which also applies to the $10 billion held in Iraq's United Nations "oil for food" reserve fund.
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http://www.yellowtimes.org/article.php?sid=1083&mode=thread&order=0
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Also sent in by a reader is the following site, which some might say offers views and opinions a bit far from the mainstream.  However, there are some thought provoking articles and information, for what it is worth.  Current topics include some information that the US has and is using uranium-based weapons in Afghanistan (low impact nuclear weapons that are hard to detect, but leave a degree of radiation in it's wake).  Many of these claims are of course hard to verify, so it is difficult to say what is indeed true and what is not.  But, for those readers that have an interest in reading some alternative opinions, information and ideas, perhaps it is worth a look:
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http://www.rense.com/
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READERS WRITE IN:
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Hi John - Great newsletter this week, as usual.  One of the problems with e-gold and its ilk, is that although the companies may be registered elsewhere, often the principals and key computers/records are in the US, and you can bet they will be leaned upon by the IRS in the future.  Furthermore, it's very difficult to get your money into the system anonymously, unless you earn e-gold with your website.
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Of all the systems out there, the most robust I've found is the Digital Monetary Trust, which has very good hooks into the traditional banking system with obfuscated entry points - but none in the US.  They also have a mechanism for trading financial markets (it's kind of a cross between futures and spread betting on indices in the UK).  Their IT infrastructure is very privacy oriented-- mathematically they can never prove who initiated a transaction.  If you would like to take a look:
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http://dmt.orlingrabbe.com
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EDITORS REPLY: I have been intrigued by the idea of an anonymous electronic currency payment system, and do find it to be a very interesting challenge to the traditional payment systems (money wire transfers, credit card payments, etc.).  As you mention, perhaps one of the problem with a variety of these systems, be it e-gold or be it Visa or MasterCard accounts, is as you say - the records are in a place subject to being reviewed and confiscated.  Although, if you are going to use ATM cards and Credit Cards, perhaps better that they be anonymous (less information in the pipeline, such as your name being absent for one thing).
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In today's world, keeping your business and personal affairs is becoming even more difficult.  In addition, anyone who complains is automatically assumed to be one of the bad guys.  The logic behind all this being that if you are concerned about your privacy being violated, obviously then you must have something to hide or be a crook.  (No, that's not it - It is simply the case that power corrupts, and if any government gets to the point they can control every aspect of your financial and non-financial life - look out).  In any event, I look forward to someone, somewhere pulling off a truly secure, confidential system not domiciled under a big brother government.  But, I have to admit that it's a tough job to complete.
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Another Reader Writes on the Same Topic:
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Hi John - I was fixing to write you about e-gold myself when I read that someone else beat me to it.  John, I am not trying to get you to verify the honesty or integrity or anything in regards to e-gold, but I think what the other person and I were wanting to possibly do, was just to use e-gold to get our honest and honestly obtained money out of the US and into a Dominican Bank. Myself, I will then get a Visa or MasterCard or whatever. In other words I'm not interested in having e-gold replace Visa. Its just that, the way we're being tracked and spied upon in this supposed free America, decent people are looking for alternative ways of getting our hard earned money away from this maniacal government (far away), without leaving a paper trail. I am going to coin this phrase. The United States Of America (land of the free) are going through what I call the "Confiscation Age", of our future history. Did you know that in Long Beach, California, if a John picks up a Prostitute on the street, police can immediately confiscate his car, and then they can sell it.  I think they just turned me into a Libertarian. (**smile**)  Seriously. (If it's two consenting adults and they are not harming each other, then there is no law broken).  Thank you John, I consider you a light in the dark. I really mean that.
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EDITORS REPLY:  Thank you for your letter.  By the way, why is it that men who pick up prostitutes are called John, and why did my mother name me John?  One of those great mysteries of life I guess.  In any event, in terms of your comments, I would agree with most of the things you stated.  However, I would go so far as to say that I would like something along the lines of an e-gold to replace Visa and MasterCard as just one example of an alternative cash movement or monetary transfer system that is not domiciled within a high tax - highly controlled nation.  Once again, very difficult to set up and implement in part because of how ingrained some of these other systems have become in terms of world commerce, but a worthwhile idea for those that believe the right to have some privacy and confidentiality in place regarding personal business transactions.  There are those people of course who will argue that banking secrecy and the ability for anonymous financial transactions (such as an e-gold type of system) allow the crooks to operate more freely, and the truth is they are right.  However, privacy in financial transactions or not, the crooks will still be crooks and continue to do what they always have done.  In addition, human beings are very adaptable and the crooks will always find a way to skirt the system, so the people left behind (who are now prone to have their assets very easily confiscated) are of course the law abiding average citizens caught up in the bureaucratic maze of government agencies out of control (one is called the Internal Revenue Service, also known as the IRS).  Key point is: Power Corrupts and Absolute Power Corrupts Absolutely.  When one nation or small group of nations has control over all electronic information systems, financial transactions, banking and payment systems, etc. - look out - the possible results are not pretty.  
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Another Reader Writes:
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I thought your readers might like to know that the Justice Department has drafted a sweeping expansion of the Anti-Terrorism Act which promises to further erode the freedoms previously enjoyed by Americans.  The Bush Administration is preparing a bold, comprehensive sequel to the USA Patriot Act that will give the government broad, sweeping new powers to increase domestic intelligence-gathering, surveillance and law enforcement prerogatives, and simultaneously decrease judicial review and public access to information. The Center for Public Integrity has obtained a draft, dated January 9, 2003, of this previously undisclosed legislation and is making it available in full text. The bill, drafted by the staff of Attorney General John Ashcroft and entitled the Domestic Security Enhancement Act of 2003, has not been officially released by the Department of Justice, although rumors of its development have circulated around the Capitol.
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Further disturbing is that there have been no consultations with Congress on the draft legislation. It raises a lot of serious concerns and is troubling as a generic matter that they have gotten this far along and tell people that there is nothing in the works. What that suggests is that they're waiting for a propitious time to introduce it, which might well be when a war is begun. At that time there would be less opportunity for discussion and they'll have a much stronger hand in saying that they need these right away.
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To read the full report and documents, visit:
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http://www.public-i.org
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EDITORS REPLY:  Thank you for the letter and the information.  I suppose all one could say is what the heck, the Bill of Rights is nothing more than paper and ink anyway.  Welcome to George Orwell's 1984 - although about twenty years later than even he thought.
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Another Reader Writes:
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Mr. Schroder - Enjoy your newsletter constantly.  Thanks for the insight.  I could not help but feel some interest in the story of the taxpayer who is considering moving to X country to avoid harassment by the IRS.  To get to the point, my husband and I filed 5 years worth of tax returns late, the have been investigated by CID agents for doing what they call "Filing Fraudulent returns".  Lawyers we have working on the case tell us that they believe that we will eventually come free of the criminal investigation and that the situation will return to being a civil matter.  That may be the case and I hope it is, but in the short term, we are piling up large legal bills and becoming very stressed out.  So, I currently have an opportunity to work in either one of two countries.  You can see where our thinking is going with this and what will happen to us if we leave the US and take up residency in one of those places?  An attorney we spoke with in one country tells us that the Extradition Treaty with the US does not include tax related issues, but that our work visas could be reviewed with this in mind by the local authorities.  As far as the other country, I have not spoken with anyone but the thoughts are still there.  I cannot get a straight answer out of one of our domestic attorneys, but we are both thinking that their first concern is keeping a paying, stressed customer coming back.  What do you think of this situation? Thanks in advance and I look forward to your reply.
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EDITORS REPLY:  Well, a very interesting letter and please forgive me for deleting the countries you mentioned, but I did so to protect you from any backlash.  Much of what you state is certainly true.  Meaning, it is very accurate to say that tax related issues from another country take very low if any priority at all.  Having a tax dispute with your former country is one thing, being wanted for mass murder quite another (and rightfully so).   For this reason, some people might be concerned that Para-Troopers will be sent after them, but it is highly doubtful unless you are a very public figure such as Bill Gates, and make a public spectacle out of it (being overly boastful in the process).  Also, I would say providing you do everything correctly in your new home country, you should not have a problem.  Of course the very interesting thing is, that you actually have a choice as to what country you may want to live in, taking into account a number of issues.  For example, country X may be more attractive than country Y simply because of lower taxation, lower housing or cost of living and so on.  In other words, you can literally shop for a new home and a new country of citizenship just as you might do for anything else.  And why not?  Countries can and do compete for new citizens, and new foreigner investors - so you can certainly take advantage in terms of which country offers you the most.
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This information has been compiled and presented by John Schroder of Ascot Advisory Services, for the benefit of clients and readers. Ascot Advisory Services provides assistance with such matters as offshore company formation, Panama Foundations, offshore banking, and special services in the Dominican Republic regarding residency, free zone applications, etc. For more information:  
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