Concerns over FATCA
- Thread starter rodiy2k
- Start date
We had a bank account that for a long time contained only a couple of pounds. My mother paid in a wedding gift cheque to that account that we didn't know about.
It earned at most $2 of interest in one year. With no FBAR files the IRS demanded 27.5% of the balance of this account in OVDP. We explained that after we took away the foreign tax credit the tax rounded to zero. They didn't care. Unreported income with no FBAR meant we lost part of the balance.
Now the IRS has now admitted the OVDP was too harsh. Notice that there is no way to get any money back if you were treated badly by this process. The new rules contains some traps also. The 5% penalty applies to all accounts even if no income was unreported (think pensions).
The biggest mistake in my life was to think the IRS would be reasonable. They pulled loads of tricks on us relating to foreign accounts. We were advised to enter OVDP by an attorney and many professions are saying that this was a mistake for huge numbers of people they put into this process.
They are littering the tax code with special penalties, special statue of limitations and special informational filling with steep penalties for anything foreign.
It earned at most $2 of interest in one year. With no FBAR files the IRS demanded 27.5% of the balance of this account in OVDP. We explained that after we took away the foreign tax credit the tax rounded to zero. They didn't care. Unreported income with no FBAR meant we lost part of the balance.
Now the IRS has now admitted the OVDP was too harsh. Notice that there is no way to get any money back if you were treated badly by this process. The new rules contains some traps also. The 5% penalty applies to all accounts even if no income was unreported (think pensions).
The biggest mistake in my life was to think the IRS would be reasonable. They pulled loads of tricks on us relating to foreign accounts. We were advised to enter OVDP by an attorney and many professions are saying that this was a mistake for huge numbers of people they put into this process.
They are littering the tax code with special penalties, special statue of limitations and special informational filling with steep penalties for anything foreign.
M Paquette
Moderator Emeritus
And if we have to spend a few thousand million a year in enforcement, collections, and lost economic opportunity to collect 792 million a year in taxes, well, so be it. It's worth spending thousands to collect hundreds, right?
They'll make it up in volume...
Foreign Account Tax Compliance Act - Wikipedia, the free encyclopedia
FATCA Carries Fat Price Tag - Forbes
Oh, and FATCA misses the bulk of international tax evasion.
http://fas.org/sgp/crs/misc/R40623.pdf
Meadbh
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jul 22, 2006
- Messages
- 11,401
Have they thought this through? The net effect of this will be more isolation of the US. Foreigners will not be so keen to establish a US presence, marry USians, go into business with them, invest, etc, etc. It will also increase banking costs internationally. USians will find it more difficult to live or even study abroad as they will not be able to easily establish a financial presence.
tmm99
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- May 15, 2008
- Messages
- 5,221
I get it that you cannot buy more, but you cannot even rebalance what you already have in IRA's either?? That seems way too much restriction.
Last edited:
timeasterday
Recycles dryer sheets
So it seems like dishonesty is the least hassle to get around this. Keep a US address someplace (mail forwarding agency, relative, etc.), a US phone number via VOIP, and a US bank account. Never tell your IRA company where you really live.
meierlde
Thinks s/he gets paid by the post
The only concern then is to be sure that your US residence is in a state with no Income tax. You would need to move there for a while get a drivers license and renew it, register to vote etc. As far as the US government is concerned that is probably ok because the 1099s will get mailed.
But of course you will have to give up the foreign earned income exclusion to do this.
No one answered your question.
There has never been a cost/benefit analysis for FATCA. The closest anyone came was from a joint congressional committee. Their estimate: FATCA would generate $8.7 billion of revenue over 10 years. That's $870 million a year.
The cost to the US is virtually nil, only the IRS time and expenses to collate the information. The US, at present, will not reciprocate. It's unlikely they ever will.
The cost to other countries can be measured in $'s and goodwill. From an article in The Telegraph, a higher end UK daily paper:
British public footing a £1bn bill - to aid the US taxman
Playing poodle? British businesses have spent years and hundreds of millions of pounds preparing for these new US tax rules.
The Investment Management Association, for example, the trade body for Britain’s fund managers, lists 1,000 documents on its website related to these rules. Many lawyers and consultants advising British finance firms have had a field day, working on nothing else for years.
....last year, after the Government had negotiated a less cumbersome version of the requirements, HMRC said it expected the one-off costs to fall to £900m-£1.6bn ($1.53bn-$2.72bn), followed by an annual £50m-£90m ($85m-$153m). HMRC’s own “one-off IT and project costs” would be £5m ($8.5m), with “annual costs of £1.4m ($2.38m) incurred from 2016”. (Bold mine, at current exchange rates)
No one wants tax evasion anywhere. But surely we shouldn’t be footing a £1bn-plus bill for initiatives of benefit to another country?
British public footing a £1bn bill - to aid the US taxman - Telegraph
This for the UK only, and the UK is but one of over 200 tax jurisdictions around the world.
FATCA isn't a revenue measure, it's a compliance effort. There are no new tax obligations. Alongside it's rollout has been a well publicized crackdown on banks. Not so public has been a tax amnesty program for non-criminal evasion, which I understand is has already collected close to the number you suggested and is probably soon to phase out.
I agree the domestic cost is much less than that thrust upon US trading and banking partners. For most people and businesses, engaged in honest effort and intending to comply, the learning curve is steep and substantial initial effort is needed. Once up and running, however, it shouldn't be that bad. Countries with weak fiduciary structures or limited legal systems, however, may see it differently.
I think the biggest negative impact will be on migrant's remittances. This would be unfortunate, these folks are poor and cannot afford additional cost, and it could drift into migrant labor markets.
Whoa.....! I think we'll have to respectfully agree to disagree on this point. Compelling compliance for someone to have a driving license in order to drive on the public roads is not a revenue raiser; it's required compliance for the publics' safety. The IRS's sole purpose is to collect tax revenues to fund the US Government and it's various programmes. If we have 100% compliance with all IRS regulations by all those responsible to comply, but the net result in revenue is $0, would the IRS be congratulated on it's achievement of 100% compliance and its collection of $0 revenue be acceptable?
Agreed, the tax obligations for a US Person are not new, but the reporting obligations as a result of FATCA (8938 for example) are new, and the obligations, both financial and reporting, placed on foreign financial institutions and foreign governments (with IGAs) is new. What is also new are the penalties for not completing 8938 (if required) and the 30% sanctions placed on FFIs if they do not subject themselves to FATCA.
And rightfully so, if their intention was to commit tax fraud. The UBS and CreditSwiss crackdown has been enforced by the US Department of Justice, not the IRS. But calling PostFinance guilty for having accounts held by Swiss Citizens and residents who also may have had US Person status (unknown to the bank, or possibly the person themselves) is not a crackdown. It's a gotcha by our rules.
To my knowledge, there has never been an amnesty programme. There have been a number of programmes with reduced penalties. A sort of plea bargain situation. The latest programme, the NEW Streamlined Programme comes the closest, but still contains potential risks for the filer.
Appraisals of the FFIs around the world who have signed up to FATCA are starting to come in. The results are interesting. In terms of world GDP, the number signed up represent countries comprising almost 75% to 80% of global GDP. What is disturbing are the (large) geographical areas who have yet to come on board. They represent the majority of countries with the low/lowest economies. If a US charity (even US Government sponsored) donation were to be made to assist a poorer country, and that country had not signed on to FATCA, would the US withhold 30% of the donation? Not good news for those countries.
Perhaps we can agree that FATCA did not introduce any new tax obligations on US residents or citizens, it is an enforcement mechanism for the existing liabilities combined with new reporting requirements.
It may be a case of using a cannon to ward off a mosquito, but then again, around the world there are few monetary or tax issues capable of generating such resistance.
"Tax amnesty" was the term coined by the Treasure and the accounting world. You are correct that is is better labeled "reduced penalty".
It may be a case of using a cannon to ward off a mosquito, but then again, around the world there are few monetary or tax issues capable of generating such resistance.
"Tax amnesty" was the term coined by the Treasure and the accounting world. You are correct that is is better labeled "reduced penalty".
timeasterday
Recycles dryer sheets
But the US address would just be for the company that holds your investments. If you file your taxes as a foreign resident with an overseas address I don't see how that ever gets back to your IRA company.
meierlde
Thinks s/he gets paid by the post
The MF company would send your 1099s to the US address. Since MF companies also send copies of the 1099s to the states, the state would see you as a resident for tax purposes. So the state would see a 1099 with no matching return.
Free_at_49
Recycles dryer sheets
- Joined
- May 7, 2005
- Messages
- 132
I skimmed over the Boggleheads thread that somebody posted above. I'm amazed at how easily people get lost in the details, there was only one poster who said that all US citizens should be treated equally, regardless of their country of residence. And that is simply not the case.
I don't know what that statement was meant to say because it seems to me that everyone is treated equally when it comes to FATCA. It doesn't matter if you are a US citizen living in the US or another country, you are required to declare all foreign financial accounts above a certain threshold. (Maybe the threshold for reporting is higher if you reside overseas)
Free_at_49
Recycles dryer sheets
- Joined
- May 7, 2005
- Messages
- 132
When living abroad you're restricted on how you can invest your US savings, or move your savings to another country. People offered workarounds: having a fake US address, a fake US phone #, a fake IP on their computer so they appear to be in the US, temporary residence in a no-tax state so they can get a fake drivers license. I don't want to be drawn into that game. Do you?
Gotcha, I understand the statement now. I do plan to live abroad and maintain a legitimate US address as we expect spend the winters in the US and will keep an apartment available.
The US government doesn't restrict how USC's living overseas can invest their US savings it is the banks who are making these decisions and like all private businesses they have the right to make the rules as long as they stay within the law.
Similar threads
