Americans with accounts at Citibank & Bank of America in Belize should be worried as the IRS moves in !

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Click IMAGE for US Compliant Solutions – (Photo Credit: Craig Warga/Bloomberg)

IRS Hunts Belize Accounts, Issues John Doe Summons To Citibank, BofA

A federal judge issued an order allowing the IRS to serve a John Doe summons to reveal Americans with offshore accounts in Belize. Targets are Belize Bank International Limited (BBIL) and Belize Bank Limited (BBL). The IRS wants to know who has accounts at BBIL, BBL, and others. But the order entitles the IRS to get records of correspondent accounts at Bank of America and Citibank.

BBL, BBIL, and Belize Corporate Services (BCS)–which sells off the shelf companies–are based in Belize. But the John Doe summonses direct Citibank and BofA to produce records identifying U.S. taxpayers with accounts at BBL, BBIL, and affiliates, including correspondent accounts to service U.S. clients. Transactions in correspondent accounts leave trails the IRS can follow. The IRS obtains records of money deposited, paid out through checks, and moved through the correspondent account through wire transfers.

The IRS already knows about these entities from the IRS offshore disclosure program, OVDP. And now the IRS can ferret out depositors who didn’t step forward. It shows the push me pull you of the many ways the government has of gaining secret bank records. Whistleblowers, cooperating witnesses, the OVDP treasure trove of data and more. A John Doe summons to UBS AG produced records on the now defunct Swiss bank Wegelin & Co.’s correspondent account at UBS.

A John Doe summons to Wells Fargo sought records of the Barbados-based Canadian Imperial Bank of Commerce FirstCaribbean International Bank. The government has it down to a science. Remember, coupled with a key whistleblower, in 2008, a John Doe summons blew the lid off the hushed world of Swiss banking. A judge allowed the IRS to issue a John Doe summons to UBS for information about U.S. taxpayers using Swiss accounts. That eventually led to Americans scrambling for cover and UBS forking over names and a $780 million penalty.

Full story continued here..,

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Retirement Income: Smart Tax Strategies

For many, the two most important sources of retirement income are Social Security benefits and distributions from retirement accounts, including required minimum distributions after age 70 ½.

But these two present a tax challenges.

The rules for calculating taxes on distributions from retirement plans are not the same as those for taxing Social Security.

Withdrawals from employer retirement plans and IRAs are taxed as ordinary income, but Social Security benefits may or may not be taxable, depending on a few factors.

Advisor’s must help their clients create a plan that will optimize both income sources in terms of benefits and taxes.

Under the tax code, there are special rules for calculating the taxation of Social Security benefits. No one ever pays taxes on more than 85% of their benefits.

This means 15% is tax-free for everyone. However, these tax rules do not apply to distributions from retirement plans.

The amount of your clients’ Social Security benefits that are subject to income tax depends on the total amount of combined, or provisional, income they have.
The formula for calculating this can be a bit confusing; see the “Add It Up” graphic.

SS plus AGI IRS form 1040

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Note that adjusted gross income includes wages, self-employment income, dividends and interest, capital gains, pension payments and rental income, among other items.

If a client is single and has a combined income between $25,000 and $34,000, up to 50% of the Social Security benefits are subject to tax. If the combined income is more than $34,000, up to 85% of Social Security benefits are subject to tax.

If clients are married filing jointly, they may have to pay taxes on 50% of Social Security benefits if their combined income is between $32,000 and $44,000. And if their combined income is more than $44,000, up to 85% of their Social Security benefits are subject to tax.

Unlike many thresholds in the tax code, these amounts are not indexed for inflation.

RETIREMENT PLAN RMDs

RMDs and other distributions from retirement plans add a layer of complexity to the taxation of Social Security benefits.

When calculating combined income for the taxation of Social Security income, you must include distributions from retirement plans, including RMDs from both IRAs and employer plans.

RMDs can increase the taxation of Social Security because they raise the AGI and thus boost combined income. But, of course, clients should not stop taking RMDs to lower the taxation of their Social Security, because there is a 50% excess accumulation tax for not taking (or not taking enough of) an RMD.

Clients should plan, however, for the potential impact RMDs may have on Social Security benefits. There are several planning strategies advisors should at least consider.

SPENDING DOWN THE IRA

One strategy that could make sense for clients is “spending down” IRAs in early retirement to delay claiming Social Security benefits.

This approach offers several primary benefits. Among them:

  • Delaying Social Security benefits can result in higher monthly payments for life (and, potentially, over the lifetime of a surviving spouse).
  • Required minimum distributions will be smaller due to lower year-end balances. As a result, combined income may be lower, resulting in a smaller amount of Social Security benefits becoming taxable.
  • By swapping out IRA income for Social Security benefits, a client may be able to have more spendable dollars due to the relative tax efficiencies of those benefits.

However, there are also some drawbacks to this approach:

  • There is no guarantee a client will live long enough to see the benefits of delaying Social Security payments.
  • IRA assets remaining at a client’s death can be passed on to beneficiaries, but Social Security benefits generally die along with the client (or spouse).

ROTH CONVERSIONS

Another potential strategy to consider is converting IRAs and other pretax retirement account funds to Roth IRAs prior to taking Social Security benefits.

The primary benefits of this approach include:

  • Unlike supposedly tax-free municipal bond interest, tax-free distributions from Roth IRAs don’t increase combined income. Therefore, tax-free distributions from Roth IRAs can be taken without subjecting Social Security benefits to increased taxation.
  • Roth IRAs have no required minimum distributions, so clients can supplement their other income (including Social Security benefits) with distributions from Roth IRAs as they please, without triggering taxation of Social Security benefits.

There are, of course, some downsides to this approach as well.

For one thing, it may be more tax efficient for a client to have more of their future Social Security benefits included in their income than it is for them to complete a Roth IRA conversion today.

And, of course, there’s no guarantee that the rules for Roth IRAs today will be the same as when a client is eligible to claim Social Security benefits.

If the Roth IRA conversion strategy is going to be used to minimize the taxation of Social Security benefits, it’s often best to do so before benefits are received. That’s because, when clients are receiving Social Security benefits, converting IRA or employer plan funds to a Roth IRA may increase the taxation of Social Security for the year of the conversion.

On the other hand, affluent clients who have higher combined income from wages, interest, dividends and RMDs may already be paying tax on 85% of their Social Security benefits. A Roth IRA conversion won’t affect their Social Security, because the taxes they’ll owe on this income can’t increase.

Of course, the Roth IRA conversion itself will add to their tax bill and could push them into a higher tax bracket.

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Click image to download a FREE Strategy Fact-Sheet on international Contract Based Personal Contribution Retirement Plans

SAMPLE CASE

A recent tax court case illustrates the confusion over how the tax rules work for both Social Security benefits and RMDs, and how they can affect each other.

In this case in question, Dennis J. McCarthy et. ux. v. Commissioner, Holly and Dennis McCarthy, a married couple, were both receiving Social Security benefits. Holly — a retired school nurse who participated in Ohio’s State Teachers Retirement System’s qualified retirement plan — was also taking distributions from that plan.

In 2011, she received a $27,701 plan distribution. She received a copy of IRS Form 1099-R reporting a $27,701 gross distribution and a taxable amount of $27,413. (The small difference between the gross and taxable amount was $288 of tax-free basis, or after-tax, funds.)

No federal income taxes were withheld, in all likelihood because she chose to have zero withheld for taxes.
The McCarthys then filed a joint federal income tax return for 2011 in which they reported only one-third ($9,233) of the retirement plan distribution, with the tax able amount as $8,945 ($9,233 – $288 basis = $8,945).

Holly and Dennis also reported receiving Social Security benefits totaling $37,600 — an amount that, in truth, included some of Holly’s plan distribution — with a zero taxable amount on their tax return.

In 2013, the IRS sent the couple a Notice of Deficiency for errors in their 2011 federal income tax return. The IRS claimed the McCarthys owed over $1,000 more in taxes, because they had failed to include over $18,000 of Holly’s plan distribution as income.

The IRS also claimed that the couple should have included in income more than $3,800 of Dennis McCarthy’s Social Security benefits that year.

FIGHTING THE FEDS

The McCarthys disagreed with the IRS and took the issue to Tax Court, where they represented themselves. They were age 82 at the time.

Unfortunately for the McCarthys, the court agreed with the IRS and ruled that the pair owed taxes as a result of their miscalculations with respect to both the retirement plan distributions and the Social Security benefits. The court noted that the McCarthys had mistakenly claimed some of the Ohio teachers plan distribution as Social Security benefits.

In its ruling, the court found that “by classifying a portion of the STRS Ohio distribution as Social Security benefits, petitioners sought to minimize tax on the untaxed benefits Mrs. McCarthy accrued during her career.”

The court also ruled that the couple miscalculated the taxable amount of Dennis McCarthy’s Social Security benefits. He received $19,132 in Social Security benefits and reported none of it as taxable for 2011.

The McCarthys’ only argument was to ask the court to make an “equitable resolution” in this case. They obviously were confused, and argued that it was unfair that two agencies of the federal government tax their retirement distributions differently.

They said: “In essence, what we seek is ‘Judicial Redress’ of the financial inequity created by two different Arms of Government (SSA and IRS) defining the same monies (2/3 of the STRS Pension) in two completely opposite ways each to the detriment of the taxpayer. This seems to violate Court Rulings that the Government ‘Can’t Have Its Cake And Eat It.’ ”

The McCarthys are right that this is confusing. Even so, the court responded by saying that it must enforce the law as written and cannot change it to give them a break; only Congress can do that.

No one wants to spend their retirement years fighting the IRS. Advisors must ensure that their clients avoid a fate similar to that of the McCarthys by helping them understand the often confusing rules of taxation for different income sources.

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Original article by Ed Slott, a CPA in Rockville Centre, N.Y., is a Financial Planning contributing writer and an IRA distribution expert, professional speaker and author of several books on IRAs. Follow him on Twitter at @theslottreport.

Top 3 Financial Concerns of Boomers Approaching Retirement

financial worries

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The number one financial concern of baby boomers nearing retirement is not being able to maintain their current lifestyle throughout their golden years, reveals a new survey by one of the world’s largest independent financial advisory organizations.

The second biggest worry is not being able to stop work when they want to; and the third is not being in a position to financially support close relatives…

Original article:
The Top 3 Financial Concerns of Boomers Approaching Retirement | ThirdAge.

Everything U.S. Expats Need to Know About IRS Tax Forms (But Were Afraid to Ask)

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Many brave Americans overseas attempt to do their own tax returns, and often inadvertently end up learning about tax forms they may not have been filing or filed incorrectly. Unfortunately, many taxpayers who work with paid professionals also have ended up missing forms in their tax returns. The remainder of this article is dedicated to some of the most common tax forms that are generally part of an expat-American tax return. Whether you prepare your own return or work with a tax professional, you should be familiar with these forms.

Common Overseas Tax Forms

Most professional tax preparers will be familiar with these forms, and most consumer tax-preparation software packages will support them:

Form 2555 & 2555- EZ: These forms are for calculating your Foreign Earned Income Exclusion (FEIE) and to calculate your Foreign Housing Exclusion or Deduction. If you meet certain foreign residency requirements, you may be able to exclude up to $99,200 of earned income in 2014 and a portion of your foreign housing expenses from U.S. income tax. Note that this exclusion does not apply to self-employment taxes. If you are self-employed abroad, you are still subject to U.S. Social Security taxes unless you live in one of the 25 countries with which the U.S. has a Social Security Totalization Agreement. The FEIE is generally advantageous to use when income tax rates in the foreign country are lower than in the U.S. and/or your total earned income is below the exclusion threshold.

Form 1116: This is the Foreign Tax Credit form and it is used to claim a credit against your U.S. income tax for income taxes paid in the foreign country. This credit applies both to foreign earned income (wages, self-employment income, etc.) and unearned income (interest, dividends, capital gains, rents, etc.). This is generally the most beneficial form to use for residents of countries with high income tax rates, those with children eligible for the additional child tax credit and those interested in contributing to U.S. retirement plans (traditional and Roth IRAs, SEPs, solo 401(k)s, etc.)

FBAR Form FinCEN 114: This form is independent of the tax return and a separate filing requirement. The FBAR applies to any U.S. person who owns, has beneficial interest or signature authority over foreign financial accounts that exceed $10,000 in the aggregate in value at any time during the year. If you have any foreign bank accounts, this also has to be disclosed on Part III of Schedule B, whether the FBAR is required to be filed or not. FinCEN 114 must be e-filed and cannot be mailed, with the absolute filing deadline on June 30, with no extension possible.

Form 8938: This form, also known as the Fatca form, is used to report Specified Foreign Financial Assets and the income derived from them. There is some overlap with the FinCEN 114 Form (FBAR), but the filing thresholds are higher, and depend on the taxpayer’s residency and marriage status, with different thresholds for the highest value reached during the year and on the last day of the year. These thresholds range from a low of $50,000 to a high of $600,000.

Other Overseas Tax Forms

Not every tax preparer will be familiar with the forms described below. If any of these forms apply to your situation, you will need to make sure that your preparer is qualified to do the work. Many of these forms are quite complex and require special training to prepare. The IRS, for example, estimates that each Form 8621 requires almost 17 hours of record-keeping and more than 14 hours to prepare. These are the forms that are most commonly missed or filed with errors. The list that follows is illustrative and not comprehensive:

If you received a gift or inheritance from a foreign person, even though it will generally not be taxable in the U.S., depending on the amount, you may have to report it in Form 3520. This form is also used to report transactions that you had with foreign trusts. If you are grantor in a foreign trust, you are likely required to file Form 3520-A in addition to form 3520.

If you run your own business in a foreign country, you may have established a company to conduct your business. Depending on the entity’s classification for U.S. tax purposes, which will be a corporation by default or will depend on the classification election made through Form 8832, you may be required to file Form 8858 if the entity is disregarded; Form 5471 if the entity is classified as a corporation; or Form 8865 if classified as a partnership. Transactions between you and your foreign company may have to be reported on Form 926.

If you live in a country with which the U.S. has an income tax convention, you may be entitled to certain treaty benefits with respect to your foreign retirement accounts, re-sourcing of certain U.S. source income to avoid double taxation, taxation of foreign social security, etc. The treaty-based positions taken in your return may have to be disclosed in Form 8833.

If you have a brokerage account or other investments (including some foreign retirement accounts) in a foreign country, these investments may be classified as Passive Foreign Investment Companies or PFICs, which are subject to special tax rules that are generally unfavorable in nature. Most foreign mutual funds and ETFs are classified as PFICS. Each PFIC you own is reported on a separate Form 8621.

Other forms that could also apply to your situation include Form 5173: Transfer Certificate which is issued by the IRS upon the death of an American citizen overseas, and is a discharge form confirming that all taxes had been paid and which is often required by banks and brokerage firms to release funds to the estate; Form 5472 for certain U.S. corporations with 25% foreign ownership and certain foreign corporations engaged in a U.S. trade or business; and Form 720, Quarterly Excise Tax Return, to report and pay excise taxes on certain foreign life insurance premiums.

Common Tax Forms – With Some Overseas Components

The following forms are common for U.S. taxpayers but also have some international elements to be aware of:

1040: Ultimately all of your income (foreign and domestic) should end up on your form 1040. Americans married to non-Americans may be able to us the Head of Household filing status instead of married filing separately. In some cases adding a non-citizen spouse (and their income and assets) to the U.S. tax return can be beneficial. All dependents on the return, must have a U.S. tax ID number.
1040: – Schedule A: Some expenses related to being overseas may be able to be claimed as itemized expenses such as certain foreign taxes, certain moving expenses and travel, mortgage interest, medical and dental expenses etc.
1040: – Schedule B: Part III of Schedule B has information related to foreign trusts and foreign bank accounts. Make sure you check these correctly.
1040: – Schedule C. If you live overseas and are self-employed, you will still have to file a Schedule C. You may be subject to U.S. Social Security though Totalization Agreements may negate the need for paying into U.S. Social Security. You will also generally be able to contribute to a U.S. solo 401(k) or SEP IRA but these may not be tax-deferred in the country where you live and work.

For more information about overseas tax returns, you should check the IRS’s website, which has thousands of pages for your reading pleasure in a section dedicated to International Taxpayers. A good starting point for any new overseas American is Publication 54: Tax Guide for US Citizens and Resident Aliens Abroad.

Wall Street Journal full article here

Unreported foreign accounts face penalties of 50% of the historical high balance of the account!

“If you have an unreported foreign account, time is quickly running out to comply. There are amnesty options available but only for those who act quickly. Do nothing and you could face penalties of 50% of the historical high balance of the account.”

Hong Kong Signs FATCA Pact

china-flag fatca

The U.S. Treasury Department has confirmed that Hong Kong has signed an agreement to report certain financial account information directly to the IRS. Under the 2010 FATCA law (Foreign Account Tax Compliance Act), foreign banks must review their accounts and report any accounts with ties to the United States. Banks that fail to comply are subject to high withholding taxes and may find it difficult to continue to do business in global markets.

Over 40 countries have signed formal FATCA agreements with dozens more under negotiation. Hong Kong’s agreement, however, is a bit unusual. Most countries have crafted agreements that require the financial institution to report information to that institution’s domestic tax authority, which in turn sends it to the IRS. Many foreign countries are reluctant to have banks providing information directly to the United States.

Hong Kong has elected to join Bermuda, Austria, Japan, Switzerland and Chile as the countries that will require their banks to report directly to the IRS…

Hong Kong Signs FATCA Pact

Financial repression

100 Swiss Banks Get Ultimatum: Hand Over Americans Or Face U.S. Prosecution

Since 2009, the U.S. has had unprecedented success with ferreting out offshore accounts. It started in 2008 with key court victories against UBS. In 2009, UBS paid $780 million to the IRS and upended Swiss banking forever by handing over Americans. Many other banks followed suit, and the costs keep rising. Recently, Credit Suisse plead guilty and paid a $2.6 billion fine.

Now, from its position of dominance, the Justice Department has made it clear what it wants from the hundred Swiss banks that hurriedly grabbed the DOJ’s settlement deal before January 1, 2014. The U.S. seeks ‘total cooperation’, and that truly means total. Any American names, details, and more. The Justice Department intends to get it all.

The consequences of the Swiss not complying? You guessed it: prosecution. There were 14 Swiss banks under criminal investigation that were therefore ineligible for the deal. Such Swiss banks remain under the dark cloud of a U.S. investigation, including Julius Baer, and Pictet & Cie. Approximately 100 banks took the Justice Department settlement deal before the December 31, 2013 deadline.
image But the terms of the non-prosecution agreement were not available until now, 10 months after these 100 banks signed on.There seemed to be little choice about taking the deal, given what was happening to any Swiss bank that even tried to resist. The U.S. settlement deal broke Swiss banks into several categories, with more serious penalties for the worst offenders.

A key group is the category two banks. They have reason to believe they may have committed tax offences, and they can escape prosecution by detailing their wrongdoing with U.S. clients and paying fines. The draft non-prosecution agreement does not involve guilty pleas or criminal penalties.

However, all banks must report to U.S. authorities any information or knowledge of activity relating to U.S. tax. They must reveal all cross-border activities and close the accounts of Americans evading taxes. The 3 tiers of penalties are vastly better than a full-blown U.S. investigation with potential tax evasion charges. Participating banks are required to provide details on American accounts.

They must also inform on the banks that transferred money into secret accounts or that accepted money when secret accounts were closed. See Signed Joint Statement and Program. Banks that held accounts as of August 1, 2008, must pay a fine equal to 20% of the top dollar value of all non-disclosed accounts. That goes up to 30% for secret accounts opened after August 1, 2008, but before March 2009.

The highest tier of penalties is 50% for accounts opened after that. The 3-tier penalty punishes more recent violators most harshly. Of course, American account holders also remain in the cross-hairs. The U.S. settlement program for banks should not be confused with the IRS programs for Americans seeking to avoid prosecution.

Clearly, U.S. account holders who have not already resolved their issues with the IRS should not waste any time determining which IRS offshore amnesty program is right for them. After all, disclosure is now virtually inevitable, and the banks will presumably bend over backwards to comply. If a banks fails to follow any of the terms of the agreement, it would be void. That means the bank could risk U.S. prosecution.

There is little reason to believe that the U.S. authorities are not deadly serious about this. For depositors and banks alike, disclosure and penalties are vastly better than the alternative. And depositors should beware, since closing foreign accounts is not an alternative to coming clean with the IRS. For Americans who fail to step forward, the IRS and Department of Justice warn of their vast resources.

See original source here for more links to this Forbes article.

Investing Abroad: What US Investors Need to Know

At a time when overindebted governments are making increasingly desperate grabs for their citizens’ money, keeping all your assets invested in one country—and denominated in one currency—is a very bad idea.

Image courtesy of Gordon T Long

Image courtesy of Gordon T Long

A vitally important question for you

 Do you have a bank account in another country? If not, you should hurry up & get one.

Holding foreign currencies in an account outside of the United States is the way to go if you REALLY want to diversify your assets internationally—but in the last few years the US government has left no stone unturned to make it harder for investors to get a foreign bank account. It’s not too late, though—there are still feasible ways to open one. But you have to act quickly, before Washington enacts even stricter controls in a desperate grab for your money.

Most people know of the general investment benefits of not having all your asset eggs in one basket. This portfolio-diversification concept—investing in multiple asset classes—also applies to the political risk associated with your home country. It is a risk few people think about diversifying.

In short, internationalization is prudent because it frees you from absolute dependence on any one country. Achieve that freedom, and it becomes very difficult for any country to control you.

While diversifying political risk is something that everyone in the world should strive to achieve, it goes double for those who live under a government that is sinking deeper into fiscal trouble (e.g., most Western governments).

Here are a few compelling arguments on why you should diversify, diversify, diversify—across different countries, exchanges, currencies, banks, and asset classes.

1: IMF Endorses Capital Controls

Bloomberg reported that the “IMF has endorsed the use of capital controls in certain circumstances.“

“In a reversal of its historic support for unrestricted flows of money across borders, the IMF said controls can be useful…”

2: There Is Academic Support for Capital Controls

Harvard Economists Carmen Reinhart and Ken Rogoff suggest debt write-downs and ‘financial repression’, meaning the use of a combination of moderate inflation and constraints on the flow of capital to reduce debt burdens.

3: Confiscation of Savings on the Rise

The IMF, in a report entitled “Taxing Times,” published in October of 2013, on page 49, states:

“The sharp deterioration of the public finances in many countries has revived interest in a capital levy—a one-off tax on private wealth—as an exceptional measure to restore debt sustainability.”

A study from the IMF: The tax rates needed to for a sample of 15 euro area countries is 10% on households with a positive net worth.

Note: The tax would apply to anyone with a positive net worth. And the 10% wealth-grab would, of course, be on top of regular income taxes, sales taxes, property taxes, etc.

4: We Like Pension Funds

Unfortunately, it’s not just savings. From a paper by Carmen Reinhart & M. Belén Sbrancia:

A subtle type of debt restructuring takes the form of ‘financial repression.’ Financial repression includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and (generally) a tighter connection between government and banks.

Yes, your retirement account is now a “captive domestic audience.”
“Directed” means “compulsory” in the above statement, and you may not have a choice if “regulation of cross-border capital movements”—capital controls—are instituted.

5: The Eurozone Sanctions Money-Grabs

Germany’s Bundesbank weighed in on this subject last January:

“Countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.”

And it’s not just in Germany. On February 12, 2014, Reuters reported on an EU commission document that states:

The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis.

Reuters reported that the Commission plans to request a draft law, “to mobilize more personal pension savings for long-term financing.”

EU officials are explicitly telling us that the pensions and savings of its citizens are fair game to meet the union’s financial needs. If you live in Europe, the writing is on the wall.

Actually, it’s already under way… Reuters recently reported that Spain has introduced a blanket taxation rate of .03% on all bank account deposits, in a move aimed at… generating revenues for the country’s cash-strapped autonomous communities.

6: Canada Jumps on the Confiscation Bandwagon

You may recall this text from last year’s budget in Canada:

“The Government proposes to implement a bail-in regime for systemically important banks.”

A bail-in is what they call it when a government takes depositors’ money to plug a bank’s financial holes—just as was done in Cyprus last year.

The bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.

What’s a “bank liability”? Your deposits.

7: FATCA

Have you considered why the Foreign Account Tax Compliance Act was passed into law? It was supposed to crack down on tax evaders and collect unpaid tax revenue.
However, the result of FATCA keeps US savers trapped in US banks and in the US dollar, where the US could implement a Cyprus-like bail-in. Given the debt load in the US and given statements made by government officials, this seems like a reasonable conclusion to draw.

Source>http://www.caseyresearch.com/articles/the-single-most-important-strategy-most-investors-ignore-1

Surprisingly Important IRS Deadline? June 30, Here’s Why

You may think tax day is April 15. That’s the annual catharsis of filing and payment for millions of Americans. Yet these days millions of Americans file for the automatic six month extension and actually file closer to the October 15 extended deadline.

There are other tax deadlines, including the automatic 2 month extension (from April 15 to June 15). This applies to Americans outside the country on April 15. It might be tempting to plan an annual overseas jaunt right at April 15th.

imageAnd many people think Tax Day is that magical day every year when statistics show that you transition from working for the government to actually starting to work for yourself. According to the Tax Foundation, this year Tax Freedom Day 2014 was April 21, three days later than in 2013. In 2014, Americans will pay $3.0 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.5 trillion, or 30.2 percent of income.
This year, Tax Freedom Day was April 21, 111 days into the year.

 

Here are four reasons June 30, 2014 is more important.

1. FBARS, also known as FinCEN Form 114 are due. These are annual bank account reporting forms required if you have over $10,000 in foreign accounts any time during the year. They have been in the law since 1970, but were largely ignored for years. In 2009, they emerged as key documents in the IRS battle for offshore accounts. Failing to file FBARs draws higher civil penalties and more severe criminal penalties than failing to file taxes or tax evasion. A key illustration was the case of Mr. Carl R. Zwerner, who had to pay 150% of the value of his Swiss account.

2. June 30 is also the last day to file under the 2012 OVDP, the Offshore Voluntary Disclosure Program. If you miss it, there’s also the 2014 OVDP coming into effect right on its heels July 1st. Yet the new program is somewhat more rigorous. For example, although the main offshore account penalty remains at 27.5% of the highest aggregate account balance, you have to pay it sooner. Under the 2012 OVDP, the penalty is due at the end of the case, when you sign your closing agreement. Under the 2014 OVDP, you must pay the penalty months earlier when you send in your returns. Interest wasn’t payable on that amount under the 2012 OVDP, so the delay—which could be a year or more—was nice.

3. June 30 is the big FATCA rollout. It’s the day when overseas institutions and governments start turning in American account holders. The handover comes in two ways, either to the IRS directly or to their own governments, which in turn relay the information to the US Treasury, which in turn relays it to the IRS. It’s an attenuated process, and the stakes are high. Get ready.

4. June 30 is the last day you can send off your 2012 OVDP application and have it segue into a transitional relief Streamlined submission. This one requires some explanation. June 30 is the end of the 2012 OVDP, but it’s clear the 2012 OVDP will be around for more than the next year. After all, cases in the 2012 OVDP have to work their way through the IRS system.

At the same time, the new 2014 OVDP will be in operation too. The IRS says if you are in the 2012 OVDP and want to apply for the new Streamlined program, you can. After July 1, that evidently won’t work, unless you were already in the 2012 OVDP. Put differently, if you enter the 2014 OVDP say in July, you are in the 2014 OVDP, period.

Alternatively, you could enter the Streamlined program. But if you want to have the protection of the OVDP and the chance to switch to the lower- cost Streamlined program, you need to be in the 2012 OVDP. That means acting by July 1. Plus, joining the 2012 OVDP for this purpose isn’t just a pre-clearance. It means by July 1, 2014, mailing to the IRS Criminal Investigation your voluntary disclosure letter and attachments as described in OVDP FAQ 24. Just making a request for OVDP pre-clearance before July 1, 2014 is not enough.

Why go to all this trouble? The Streamlined program offers the chance of no penalty (outside the U.S.) or a 5% penalty (inside the U.S.). That looks considerably better than 27.5%. You could just apply for Streamlined program after July 1. However, by using the 2012 OVDP and then transitional relief, you might just get the best of both worlds.

Robert W. Wood, Forbes Contributor: “I focus on taxes and litigation”

Global Tax & Compliance – FATCA: Progress Report

When Tax-News last wrote a feature on the United States Foreign Account Tax Compliance Act (FATCA) over two years ago, there were many who doubted that the US Treasury could really make this extra-territorial piece of tax legislation work.
However, as the July 1 start-date looms ever closer, FATCA is now a fact of life for financial institutions and US investors the world over, although its implementation hasn’t been without its problems. Recent FATCA developments and issues are summarised here.

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FATCA: The Legislation

Signed by President Obama in March 2010 as a revenue provision to the Hiring Incentives to Restore Employment Act, FATCA is designed to tackle the non-disclosure by US citizens of taxable income and assets held in foreign accounts. Therefore, FATCA is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by US persons. Failure by an FFI to disclose information on their US clients, including account ownership, balances and amounts moving in and out of the accounts, will result in a requirement on US financial institutions to withhold 30 percent tax on US-source income.

Intergovernmental Agreements

To address situations where foreign law would prevent an FFI from complying with the terms of an FFI agreement, the United States Treasury Department has developed three model intergovernmental agreements (IGAs).

The Model 1 IGA requires FFIs in the foreign jurisdiction to report tax information about US account holders directly to its government, which will in turn relay that information to the US Internal Revenue Service (IRS).

The Model 1A IGA is essentially the same, except that the IRS will reciprocate with similar information about account holders from the signatory country with the partner government.

The Model 2 IGA requires FFIs to report specified information about their US accounts directly to the IRS, to the extent that the account holder consents or such reporting is otherwise legally permitted, and such direct reporting is supplemented by information exchange between governments with respect to non-consenting accounts. FFIs also report to the IRS aggregate information with respect to holders of pre-existing accounts who do not consent to have their account information reported, on the basis of which the IRS may make a “group request” to the partner jurisdiction for more specific information.

The IRS released the final text of the agreement to be entered into by FFIs to comply with FATCA in Revenue Procedure 2014-10 on December 26, 2013.

On April 2, 2014, the Treasury and the IRS announced that foreign jurisdictions that have reached agreement on the terms of IGAs under FATCA can be treated as having such agreements in effect until the end of 2014.This treatment will be available to jurisdictions that have reached agreements in substance prior to July 1, 2014, and that consent to having the status of their agreements disclosed. After December 31, 2014, only signed IGAs will be considered to be in effect.

As an increasing number of jurisdictions reach agreements in substance, the announcement provides FFIs located in these jurisdictions with the guidance they need prior to the upcoming registration deadlines.

As of June 12, 2014, 30 Model 1 and five Model 2 IGAs had been signed by the US Treasury. In addition, 34 Model 1 and 2 Model 2 IGAs had been reached in substance. The latest list can be viewed on the US Treasury website.

Canada

Of note was the IGA reached between the US Treasury and Canada. FATCA has raised a number of concerns in Canada – among both dual Canada-US citizens and Canadian financial institutions. One key concern was that the reporting obligations in respect of accounts in Canada would compel Canadian financial institutions to report information on account holders who are US residents and US citizens (including US citizens who are residents or citizens of Canada) directly to the IRS, thus potentially violating Canadian privacy laws.

However, under the IGA, while financial institutions in Canada will not report any information directly to the IRS, significant exemptions and relief have also been obtained. For example, certain accounts are exempt from FATCA and will not be reportable – including Registered Retirement Savings Plans, Registered Retirement Income Funds, Registered Disability Savings Plans, and Tax-Free Savings Accounts.

Kerry-Lynne D. Findlay, Minister of National Revenue, insisted that the IGA “is strictly a tax information-sharing agreement. This agreement will not impose any US taxes or penalties on US citizens or US residents holding accounts in Canada.”

The Investment Funds Institute of Canada (IFIC) released a statement on February 5, 2014 commending the federal government for the exemptions and relief it has secured on behalf of Canadian investors.

Switzerland

In June 2014, the Swiss Federal Council decided to bring the FATCA Act, together with the ordinance on disclosure obligations, into force on June 30, 2014, to ease Swiss financial institutions’ implementation of the new disclosure rules.

The Swiss parliament approved the FATCA-implementing Act in September 2013, at the same time as it approved the FATCA intergovernmental agreement between Switzerland and the US, which came into force on June 2, 2014, through an exchange of notes.

The FATCA agreement simplifies matters for Swiss financial institutions in their compliance with the US FATCA, which covers deposits held on behalf of US persons. FATCA implementation in Switzerland will be facilitated by a Model Two Intergovernmental Agreement, which requires Swiss financial institutions to disclose account details directly to the US tax authority with the consent of the US clients concerned. The US will have to request data on any recalcitrant clients through the normal administrative assistance channels.

Russia

Also of note is the part that FATCA is playing in the diplomatic tensions between the United States and Russia over the situation in Ukraine.

On April 29, 2014, the Chairman of the United States Senate Permanent Subcommittee on Investigations, Carl Levin, (D – Michigan) and its Ranking Member, John McCain (R – Arizona), wrote to Treasury Secretary Jack Lew urging the United States Administration to refrain from restarting negotiations with Russia on compliance with FATCA.

“We should not be negotiating with the Russians to help them avoid FATCA’s sanctions at a time when Russian forces are threatening and continuing to destabilize Ukraine,” they wrote.

Levin and McCain concluded that “refraining from negotiations for Russian banks to avoid the 30 percent FATCA penalty would place financial pressure upon Russia, and help reinforce diplomatic efforts to avoid military action.”

Regulations, Timetable and Compliance “Transition”

Final regulations for the implementation of FATCA were issued by the US Treasury and IRS in January 1, 2013. From August 2013, FFIs have been permitted to use an on-line portal for FATCA registration. Under current timelines, FFIs must fulfil their due diligence and withholding requirements to comply with FATCA by July 2014 (a deadline extended by six months) ready for the first reports to reach the IRS by March 31, 2015, regarding accounts maintained during 2014.

A package of proposed and temporary regulations released on February 20, 2014, makes additions and clarifications to the previously-issued FATCA regulations, and also provides guidance to coordinate FATCA rules with pre-existing due diligence, reporting, and withholding requirements under other provisions of the US tax code. The new regulations contain over fifty amendments and clarifications to the FATCA regulations issued in January 2013, “regarding ways to further reduce burdens consistent with the compliance objectives of the statute.”

Guidance and key amendments provide for: a framework to allow certain entities to provide information on US account holders directly to the IRS, rather than through a withholding agent; the treatment of certain special-purpose debt securitization vehicles; the treatment of disregarded entities as branches of FFIs; the definition of an expanded affiliated group; and transitional rules for collateral arrangements prior to 2017.

However, in May 2014, the IRS announced that calendar years 2014 and 2015 will be regarded by the agency as an enforcement and administration “transitional period” with respect to the implementation and enforcement of FATCA.

It is still intended that FATCA will go into operation on July 1 this year, but, with regard to its reporting, due diligence and withholding provisions, and so as to “facilitate an orderly transition,” the IRS will refrain from rigorously enforcing many of its requirements this year and next, as long as FFIs are making a “good-faith” effort to achieve compliance.

The Notice states that “the IRS will take into account whether a withholding agent has made reasonable efforts during the transition period to modify its account opening practices and procedures to document the status of payees,” and the IRS “will consider the good faith efforts of a participating FFI, registered deemed-compliant FFI, or limited FFI to identify and facilitate the registration of each other member of its expanded affiliated group, as required for purposes of satisfying the expanded affiliated group requirement.”

However, it was also noted that “an entity that has not made good faith efforts to comply with the new requirements will not be given any relief from IRS enforcement during the transition period.

Compliance Systems (Convey) and Baker & McKenzie (B&M) have said that the May 2 Notice (2014-33) from the United States Treasury Department should be regarded as facilitating implementation of FATCA by FFIs over the transition period, and not as a delay to its effective dates.

Commenting on the Notice’s reception, Jeff Cronin, Convey’s vice president of product strategy, said: “Many financial institutions and other FATCA-impacted organizations are under the impression that FATCA is delayed for another year. However, this is not the case. FATCA reporting obligations are still in place for this year and penalties could be assessed for organizations that are unable to demonstrate positive progress on their FATCA reporting obligations.”

Around 77,000 banks and other FFIs have already registered with the United States and received a global intermediary identification number (GIIN), to comply with FATCA, as shown in the first list published by the IRS on June 2, 2014.

FATCA Prompts US Exodus?

Describing the recent jump in renunciations of US citizenship as an exodus might be stretching it somewhat. But the marked increase in the number of US passports being handed in has undeniably coincided with a rise in tax administration burdens on US taxpayers at home and abroad and an erosion of individual privacy.

In addition to FATCA, individuals are still required to file the Report of Foreign Bank and Financial Accounts if they have a financial interest in or signature authority over financial accounts, including bank, securities, or other types of accounts, in a foreign country, and if the aggregate value of the financial accounts exceeds USD10,000 at any time during the calendar year.

According to Treasury Department statistics published in the Federal Register, 1001 United States taxpayers gave up their passports or their green cards in the first quarter of 2014, an increase of 47.4 percent over the 679 individuals that did so in the first quarter of last year. This figure was only surpassed by the 1,130 passports given up in the third quarter of 2013.

The number of people renouncing US citizenship is expected to grow to a new record level this year, above the 2,999 level in 2013.

In his International Tax Blog, Andrew Mitchel, a tax lawyer from Centerbrook, Connecticut, put the rise in expatriations down to the US ‘worldwide’ tax code, which subjects all of an individual’s earnings to US taxation.

Nevertheless, more than three-quarters of American expats and green-card holders who have taken out a supplementary overseas pension contract reported in a recent poll that they are “satisfied” to remain a US citizen despite the incoming FATCA rules.

Nigel Green, founder and chief executive of DeVere Group, said: “The Treasury Department’s figures seem to highlight a clear correlation between the increase in expatriations and growing awareness among Americans of FATCA’s highly contentious, burdensome and expensive requirements.”

“The official statistics make for depressing reading. It is our experience that Americans, quite rightly, are loath to give up their US passports – they don’t want to sever these ties, but do so as they feel there’s no viable alternative.”

He continued: “Against this backdrop of soaring US passport relinquishments, it is extremely encouraging that the overwhelming majority of those we polled who have taken out an additional overseas pension contract… told us they were ‘satisfied with the action taken and that ‘they would no longer consider giving up US citizenship.'”

US Clients Shunned

Anecdotal evidence suggests that FFIs are attempting to reduce the administrative burden associated with FATCA by simply refusing to have anything to do with US clients. In the case of Russia’s VTB this definitely appears to be the case.

With Russia unlikely to be able to conclude a FATCA IGA with the United States in the foreseeable future, and subject to the country’s current law on tax information exchange, VTB has become the first Russian bank to disclose that it is reducing its services to American clients.

While Russian FFIs (except for those that are already the subject of US sanctions) have still been able to register with the Internal Revenue Service (IRS), it is also apparent that, unless there is a change in Russian legal provisions, they will not be able to share information directly with the IRS or to withhold tax.

In that situation, it has been disclosed by VTB, Russia’s second largest banking group with around 2,000 US clients, that, while it has registered with the IRS and is ready to comply with FATCA requirements, it has also ceased to deal with new, and will gradually wind down its operations with existing, American clients.

In June 2014, the Heritage Foundation issued a report to demonstrate how the FATCA is hurting Americans living abroad, and has recommended that it should be reformed. In particular, Heritage noted that FATCA is burdening Americans living overseas with “enormous financial and legal burdens” through increased compliance costs and denials of service from foreign banks that do not want to have to deal with the law.

Heritage pointed out that “FATCA granted the Internal Revenue Service a new level of intrusiveness into the lives of Americans. … Under the legislation, the IRS is granted enhanced regulatory power in determining, based on its judgment, whether Americans with these accounts have wrongfully evaded US taxes.”

“FATCA’s costly IRS reporting requirements and its significant legal and financial risks make it unprofitable and arduous for foreign financial companies to serve Americans,” Heritage confirmed, and many FFIs have “adopted another strategy for avoiding FATCA: simply denying service to American customers. Some institutions have already closed the pre-existing accounts of their American clients, (and) lack of access to financial services has made it extremely difficult for Americans living and working abroad.”

Opposition To FATCA and Legal Issues

The winter meeting of the United States Republican Party’s National Committee (RNC) in Washington approved a resolution calling for the repeal of FATCA. It was a move applauded by the Center for Freedom and Prosperity, which has argued that “FATCA will fail to achieve its stated goal of significantly reducing tax evasion, is straining foreign relations thanks to the extralegal burdens placed on foreign financial institutions, is severely impacting law-abiding Americans living and working overseas, will harm the US economy by driving investment to more hospitable jurisdictions.”

Last year, the website, RepealFATCA.com, publicised a letter from Bill Posey (R – Florida), a member of the House of Representatives Financial Services Committee, to the Treasury Secretary Jack Lew warning that the United States Congress is extremely unlikely to approve the reciprocal tax information exchange contemplated within FATCA.

Posey’s letter reminds Lew that his department would need new statutory authority enacted by Congress to fulfill its side of the IGAs, and confirms his introduction of a bill into the House of Representatives to prevent the Treasury Secretary from expanding US bank reporting requirements with respect to interest on deposits paid to nonresident aliens.

Without this new authority, Treasury cannot deliver on the IGAs’ promises of equivalent levels of reciprocal automatic exchange, which, apart from data privacy concerns, Posey considers, in the letter, would also “impose costly compliance costs” on US financial institutions, and “discourage investment in the US.”

“It is clear,” Posey concludes in the letter, “that FATCA must be either substantially amended or repealed, and replaced with a cooperative scheme that replaces actual tax evasion without harming the innocent. … I believe a moratorium on FATCA enforcement and negotiation of additional IGAs is in order.”

A bill has already been introduced into the Senate by Rand Paul (R – Kentucky) to repeal the majority of FATCA. On introducing the bill, Paul had noted that “any law enforcement benefits have been vastly outweighed by the deleterious effects of FATCA on economic growth and the financial privacy of Americans,” and that “the implementation of FATCA has allowed the Treasury to make independent decisions with respect to the privacy of US citizens.”

However, while the Democrats continue to control the Senate, and while President Obama remains in the White House, any legislative attempts to overturn FATCA are likely to fail.

– See source link: FATCA: A Progress Report