09/21/98 STORMY WEATHER AHEAD FOR OFFSHORE INVESTORS

STORMY WEATHER AHEAD FOR OFFSHORE INVESTORS

Several months ago, I attended a seminar in Nassau, Bahamas, where one of the speakers was an employee of PaineWebber (''Offshore squall at PaineWebber,'' Finance, Aug. 17). The tenor of the talk was that investors should use PaineWebber as a vehicle for offshore corporations (foreign companies owned by U.S. citizens ''indirectly,'' the legal owner being the offshore agent). The talk ended with suggestions on how U.S. ''indirect owners'' could bring investment profits back into the U.S. anonymously.
At no time was avoidance of U.S. taxes advocated: It just wasn't mentioned. I could tell, however, by talking to people at the seminar that most of them had concluded this was a terrific way to avoid U.S. income taxes.
Because I was concerned that these investors were unknowingly committing themselves to actions that could lead to an Internal Revenue Service audit, I wrote a letter, marked ''personal and confidential,'' to the president of PaineWebber, advising him that an employee was less than candid in his investment presentation. PaineWebber terminated the employee's services within two days and froze his customers' accounts. Four days after I sent my ''confidential'' letter, a BUSINESS WEEK reporter called to ask me about the letter, of which she had a copy. I refused to comment on the contents of my letter, but she used it to write her article.
Now that the cat is out of the bag, I wouldn't be surprised to see the IRS follow through by investigating the tax reporting by these PaineWebber customers. My consolation is my belief that it was only a matter time before this ''investment scheme'' came to the attention of the IRS. At least, the investors who read the article will be forewarned and can file amended tax returns and pay their back taxes to avoid possible criminal prosecution.
Dan Ertel
Schenectady, N.Y.