Our new friend, 30-year IRS veteran, Steven Mopsick, has been a really good sport. He’s defended the orcs of Mordor, his former colleagues at the IRS fearlessly, and he’s taken our abuse like a trooper. He’s asked me if I wanted to put up his new post on FATCA, and I said to myself, why the heck not? Meanwhile, go have a look at his blog, especially this little piece, called FATCA Red Herring, which starts with this whopper, “For all the groaning about FATCA, there is one ‘red herring’ which should be given the lie right away, and that is the silly notion that FATCA is an attempt to force the application of U.S. law on foreign financial institutions.” Well, if nearly 400 pages of orcish regulation isn’t an attempt to force U.S. law on FFIs then I don’t know –but wait, these regs still hadn’t come out when Steven wrote that post–so you’re off the hook, Steve–I am being unfair.
Again, caveat emptor! The Isaac Brock Society maintains a non-endorsement policy of tax-professionals (see here). Also, please read not just the post, but the full comment stream.
New Rules For Foreign (Non-American) Banks with American Clients
by 30-year IRS veteran
With the publication on February 8, 2012 of the FATCA bank withholding regulations, it is clear that the FATCA train has left the station. The 400 pages of new Regulations would apply to almost every non-American bank in the world if they wish to continue to do business with American clients and financial institutions.
How FATCA works in a nutshell. The impact of the new law is two-fold. Americans with assets outside the United States starting with their 2011 tax returns, now have to disclose to the IRS, all of their foreign financial assets exceeding a specified dollar threshold, including their non-American bank accounts.
For non-American banks with American clients, they must agree to become a “withholding agent” of the United States government through the IRS, agree to an IRS review of their internal procedures, file an annual tax information return with the IRS disclosing the names and ID numbers of all their American clients, and if the American client refuses to cooperate with the bank, close the account immediately.
As part of a worldwide effort to stop Americans from using offshore banks and other financial institutions to cheat on their taxes, it was also announced on February 8, that five European countries including Spain, are working toward sharing certain data bases so that the European countries can benefit from FATCA and catch their own people who are cheating on their taxes, as well as European bankers and advisers who have been counseling American investors about how to evade taxes by using European banks and other entities. What is significant about the European announcement is the FATCA concept that participating European banks in those five countries will soon be able to give their information on American account holders TO THEIR GOVERNMENTS instead of directly to the IRS. Banks in those countries may soon be relieved of the requirement of entering into a separate agreement with the IRS. Their governments will turn over their records on their Americans and their banks will not have to deal with the IRS. We believe this creates a huge advantage for banks in those countries and we predict a scramble in other western countries to become part of that elite group of countries which are working hard to implement FATCA.
DETAILS ON THE NEW REGULATIONS AS THEY APPLY TOFOREIGN BANKS AND WHAT IS COMING UP NEXT.
The Regulations published on February 8, 2012, reflect the IRS response to the many comments the IRS has received from banks all over the world over the past several months. Most banks today have been very busy making changes to their IT systems to identify their American customers and comply with the new FATCA rules.
The IRS announced a formal comment period on the proposed Regulations which closes on April 30 of this year. Banks with concerns about the implementation of FATCA should participate in this process by submitting comments. Following the comment period, there will be a public forum on May 15 in Washington, D.C., at which time banking institutions will have another opportunity to talk directly with the IRS and raise any concerns they may have on how the processes are supposed to work.
Some foreign bank compliance officers with whom I have spoken have confirmed they are busy revamping their systems to get ready for the new rules which will be summarized below. Foreign banks which are inactive, waiting for further direction from domestic ministries or fiscal agencies are losing precious time and are doing so at their extreme peril. Moreover, even if the deadline to apply to be a withholding agent for the IRS is postponed again, those foreign banks who are late getting in their paperwork are going to cost their shareholders and owners money because of lost business, direct liability for the taxes they should have withheld, and attorney and accounting fees to straighten the mess out with the IRS once the bank fully complies.
Here is what each foreign bank must do if it wishes to continue doing business in the United States’ financial arena
A participating bank must agree to become a withholding agent of the IRS and
(1) Report certain information on an annual basis to the IRS with respect to each U.S. account and other accounts controlled by Americans and to comply with requests for additional information with respect to any U.S. account.
(2) The information that must be reported with respect to each U.S. account includes: (i) the name, address, and taxpayer identifying number (TIN) of each account holder who is a specified U.S. person (or, in the case of an account holder that is a U.S. owned foreign entity, the name, address, and TIN of each specified U.S. person that is a substantial U.S. owner of such entity); (ii) the account number; (iii) the account balance or value; and (iv) the gross receipts and gross withdrawals or payments from the account .
(3) The bank must obtain a signed waiver of its American clients’ privacy rights, if any, in that foreign country.
(4) If the American depositor refuses to cooperate, the bank must close the account.
All banks which decline to participate in the program will be at risk for a 30% withholding tax on certain defined transfers of US source income to them. This includes pass through payments of US source income to, or from other foreign banks who the IRS determines are non-Participating Foreign Financial Institutions.
ONE OF THE MOST IMPORTANT POINTS IN THIS PAPER IS THE FACT THAT FATCA APPLIES TO TRANSFERS OF US SOURCE INCOME BETWEEN FOREIGN BANKS; IF JUST ONE OF THE BANKS IS NOT PARTICIPATING, THE WITHHOLDING REQUIREMENTS APPLY.
In today’s world, a banker cannot do his job properly if he does not ask whether or not FATCA applies to every single transfer of funds involving US Source Income to or from a bank which is not a U.S. bank.
I have extensive information on the implementation dates, the rules for identifying Americans from amongst other depositors, streamlined rules for affiliates and branches of banks, the circumstances of how a bank might qualify as a “deemed compliant” bank which permits certain relief from some of the administrative burdens, key definitions, record keeping requirements, how the Anti-Money Laundering and Know Your Customer rules operate within this arena, the treatment of certain life insurance policies, and the potential liability of the banks themselves for the payment of withholding taxes which were not correctly reported.
The newly-published rules also announced a relaxation of the threshold for rules which are specifically targeted toward Private Banking and personally against Private Bankers.
Banks all over the world have realized that compliance with FATCA is simply the cost of doing business in today’s computerized, modern financial environment. Please feel free to share my summary of the new regulations contained herein as you deem appropriate. Additionally, I am available for consultation, which can be arranged by contacting my office.
The link to Roy Berg’s site is not working….
@Mona
Re “I would normally consider renouncing a wicked act but these are unprecedented times.”
Many of us have never considered renouncing US citizenship a wicked act.
I consider anyone from my land of birth who thinks my relinquishment in 1975 or my future (again, I hope) renouncement a wicked act infers the same as the similar insult to us by their painting of all who have chosen to live and make their homes in other countries “tax evader”.
I became a Canadian citizen in 1975 (with the full realization that I was relinquishing my US citizenship) since this is the country where I chose to live my life, raise my family, earn my living, pay my taxes, volunteer my time, be a contributing citizen. My family and myself have benefited from Canada citizenship in so many ways and it is a blessing that I am thankful each and every day, especially since all this overreach has come to light.
I will renounce once again as soon as I can and I will never regret it — only that I have lost any trust in what the US is. During my years in Canada, the US was to me a place to visit (as any other Canadian citizen) my family and old school friends or to be a tourist, show my children their heritage — just as someone who emigrated and made their life in the US from some other country would visit their homeland and show it to their now-US children.
Relinquishing or renouncing is not a wicked act — but I can enumerate many things that I do consider ‘wicked’ and don’t want any part of.
@Petros
I would say in terms of foreign desire for US securities this isn’t the 1990s anymore no one builds an investment portfolio on all US tech stocks. Right now I suspect your typical global investment portfolio has the US at somewhere around 25 to 35 percent of assets so still high but no more than 50. There are definately people out there trying to find ways around FATCA I am not sure they necessarily have the full support of the people running the institutions they work for(I don’t think it would look good from a PR standpoint in the US to be seen as trying to evade FATCA). Having said that the rules are onerous enough that someone is going to attempt to do it. One possibility is where someone such as yourself who isn’t a US citizen who wants to short the US market could enter into a swap agreement with another “person” who wished to have an non FATCA complaint long position in the US. Thus each of you as non US persons could create synthetically your preferred investment strategist without being FATCA compliant. The problem is if someone such as yourself as a non US person attempted to hedge your synthetic short with an actual long position through a FATCA compliant broker you personally would now be consider a “FFI” and your FATCA compliant broker is now responsible for finding that out from you and if they don’t they are liable for the witholding tax they did not collect. So there is quite a bit of onus on any US Domestic broker dealing with foreigners or a compliant FFI to find out quite a bit of information on everyone investing in the US information I suspect some even if non “US Person” will not want to share.
@Petros
I suspect if they made FATCA somewhat less onerous i.e. applying only to US “residents” they probably would have a higher degree of sucess in acheiving their goals. The problem is once a “grey market” starts up such as the Eurobond market it tends to never go away.
@Everyone
Interesting quote from FT article on FATCA
Although the five European countries would mostly enact some form of local legislation that requires due diligence and incentives to give information, these rules are unlikely to be as punishing as the US ones
http://www.ft.com/intl/cms/s/0/22ab486a-533f-11e1-950d-00144feabdc0.html#axzz1m6CtztoT
@Steven: You said “I hope you all are having as much fun with this as I am!”
Let me assure you, none of this is fun for anyone caught in this quagmire. The responsible law-abiding lives we have happily established away from the US, (sometimes for decades), have been turned upside down by this invasion into our lives.
You suggest some countries may change their constitutions for banks to be able to adhere to FATCA. Are you serious?!? Do you have any idea how hard it is to change a Constitution? Do you remember the proposed ERA Amendment–which failed.
Fortunately, Canadian Charter of Rights and Freedoms (our Constitution) is much more progressive. Here is what the equality section says: “Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.”
There was an effort many years ago to amend the Charter. It failed. I don’t think any politician wants to go down that road again.
Note, this provides protection on the basis of national origin. While I admit I am not a lawyer, this says to me that my bank in my country of citizenship and residence is not able to ask me about my place of birth. As has been listed in this thread and on other threads, only certain pieces of ID can be used for banking under the Bank Act. A foreign (i.e. US) birth certificate is not one of them.
Steven, you seem to think laws around the world will change to accommodate FATCA.. This is typical arrogant American thinking. We say–Therefore, it is.
Recently, IRS officials began talking about reciprocity. How is it reciprocity when only two other countries have citizenship base taxation? I somehow doubt US is going to sign a reciprocal agreement with Eritrea and North Korea?
Just a few days after a possible agreement was reached with some European countries, some US Congressmen are already objecting to US banks having to provide information to foreign governments.
It is estimated there are up to 1 million “US persons” in Canada. Considering we are a nation of less than 35 million, that is significant. Our elected officials know most of those former Americans are very likely to vote (one of the many strong values we were taught as children!). They all want our vote. All three major political parties have spoken out against FBARS and FATCA, so I don’t see a change in law just slipping quietly through.
And, it’s not only Canadians of American origin that would buck a change in the law to accommodate the US. Most Canadians love politicians who will stand up to Americans. .
I hope a Canadian lawyer specializing in Human Rights or Charter Rights will answer a very simple, basic question: Can a Canadian financial institution require a Canadian citizen or legal resident of Canada to provide information on place of birth in order to open or maintain an account?
C
@Blaze’s post from yesterday regarding Canadian Charter of Human Rights. I posted this awhile ago when I got a response from the Human Rights Commission regarding my letter to them about what the banks will be doing which is discrimination based on national origin.
Their letter states…..”the alleged discriminatory practice would not constitute discrimination under out Act because a dual filing obligation based on “dual citizenship” cannot be considered as a discriminatory act protected under the Act.”
So it looks like we’ll get no help from the Commission unless someone with a legal background can take up the challenge. It’s another reason to renounce and get a CLN as we are definitely not considered Canadians worthy of protection since we were born in the US.
Someone responded to my previous post and said Canadians born in Eritrea were given protection by a Canadian court. However it looks like we will not be so fortunate.
@somerfugl: You contacted Human Rights Commission. My post related the Charter of Rights and Freedoms. I would still like a legal opinion from a qualified Charter or Human Rights lawyer.
I still believe it is a contravention to ask for proof of national origin.
@Blaze: Sorry i misread your post. I would also like to see an opinion from qualified Charter or Human Rights lawyer. I think the response I got from the Human Rights Commission could be challenged, as asking for proof of national origin is discrimination, whether you were born in the USA or Eritrea.
@somerfugl
See if you can get in touch with this guy.
http://en.wikipedia.org/wiki/Joseph_Arvay
Watcher said,
“@Steven: “…others are going to make some very serious mistakes which are likely to further complicate their lives, far beyond they already are.”
Interesting comment. Please could you expand on it. Presumably you’re not alluding to renunciation. My experience has been that disconnecting from the US made my life *immeasurably* easier and simpler.”
No. I am not talking about renunciation. I would never do it myself, but I respect the right of anyone else to do so if that’s what you feel is appropriate.
I am talking to, and about, Canadians, Americans and dual nationals, who have real, ongoing, and substantial compliance issues with the taxing authorities –in the US or Canada.
The individual, personal side of FATCA is going to cause three distinct reactions in people. Some will attempt to comply, some will do nothing, and some will take the whole FATCA FLAP as a license and justification to go underground or move further underground. It is this third group I am talking to. Here is what SOME PEOPLE are going to do: (1) make real bad investment decisions based on emotion, fear, and bad advice from crackpots as opposed to approaching their investment portfolios in a business-like manner (2) some will phony up documents in an effort to cover their tracks –use nominees, hoaky foreign “trusts”, and make fraudulent transfers, (3) some will lie to Canadian banks which are making a good faith effort to comply, (4) some will use fake addresses and pressure or enlist friends and family members to join them in illegal conspiracies, (5) some will file false, fraudulent, and inconsistent forms1040 and 433, (6) some will attempt to move completely “off the grid” into a cash and barter existence which is likely to get them sideways with national and local Canadian law enforcement authorities.. I could go on and on but perhaps most importantly, some will screw things up so badly for their children and other heirs, saddling them with legal and accounting fees as they try to straighten out what their parents did, eating up most or all of what may be left of their estates after they die.
30 Year IRS Vet
@ Steven: I moved all my accounts to an Ontario credit union. I did this at the suggestions of my Canadian lawyer who suggested that TD and Royal and other major banks have assets in the United States that the IRS can use as leverage against them to get at people like me. So do you think moving my accounts to a local credit union is one of the serious mistakes that you are talking about? I mean, it is sort of like moving from UBS to Wegelin, right?
@ Steve Mopsick
I too appreciate your insight and willingness to share your considerable knowledge regarding FATCA and the internal workings of the IRS.
However, I think your remark about “having fun with this” was ill considered. I haven’t slept properly in months. I spend way too much of my time on this website trying to come to some conclusion about a course of action. I gave up US citizenship over 4 decades ago. The US gave it back, unbeknownst to me, and then dusted off their taxation laws, and said “by the way, you have reporting obligations and we’re going to fine you for not complying with them”. This may be an interesting intellectual exercise for you, Mr. Mopsick, but for thousands of others it’s definitely not fun. It’s a nightmare.
To be fair to Steven, one mark of a good litigator, in my opinion, is someone who gets pumped by the the actual battle. So I see his enthusiasm as positive, because he’s excited about the process of discovery, to find different approaches to the problem, and to interact with people who willing to disagree with him and stand their ground.
Steven serves as a good devil’s advocate (in this case the IRS’s advocate!). This site would not be the same without him.
His participation allows us to see how the other side thinks no matter how illogical their point of view. It also better prepares us to defend ourselves. I’ve learned alot reading his posts, even though my blood pressure does shoot up a little too much at times.
I think as Canadians we believe in the idea that right is right and wrong is wrong. However when dealing with the IRS, that kind of thinking may not get us anywhere.
Our victory will come through some other occurence which may not actually have anything to do with us. I hope that day is not far from now …
I apologize to any one who was offended by the fact that I was enjoying the back and forth of these discussions. I really do. I must say though, that some of the things some folks choose to post make me wonder if, “you’ve got to be kidding me, right?”. Much of what I read on this blog is written by people who have a deep misunderstanding about how government works, especially the IRS, and who have allowed themselves to be influenced by fear mongering, charlatans, and people who have no business advising others about something as dead serious as taxes, tax returns, and dealing with law enforcement agencies.
I would very politely and respectfully suggest to some of you that if you have a real, live case ongoing with the IRS, you have no business trying to handle it yourself any more than if you tried to take out your own appendix. And after doing this stuff for 41 years I must humbly admit to you that I am not making a pitch for you to hire me. Canada is an advanced, sophisticated, educated society with great law schools, and knowledgable CPA’s. I am certain that most of you have qualified tax attorneys in or close to your communities who can offer you sound advice.
My message is very simple. If you have an ongoing controversy with the IRS or it would be reasonable to assume that one is on the way, then hire a recommended, qualified, tax attorney. Make that a CANADIAN TAX ATTORNEY. On the other hand, if you have no connection to the United States, you have not been gaming the “system” by making false statements, using fictitious entities, or writing to the IRS and telling them to ” go ahead! Make my day!” you have nothing to fear. The IRS IS NOT COMING AFTER YOU. They don’t care about you. They are too busy. They don’t have the time. If you are conducting your financial affairs in such a way that it seems as though FATCA may apply to you, get help. If not then just forget about it. .
30 Year IRS Vet
@ Steven: So we should just sit tight, right?
As far as I know, no one here is under indictment. Almost everyone here has foreign bank accounts. Some of us have done quiet disclosures or go-forward compliance. Others don’t know what to do. We have not made this problem. Your beloved IRS has made it with their fear-mongering. Even on your website, and this blog post itself, creates fear.
I don’t know anyone here who isn’t in OVDI, who has an open case with the IRS. (Well except myself, but I sent that tax return in–its not the sort of thing that I should need an expensive tax lawyer for). But we are all afraid, and its because we read what the IRS puts out. As I call them, Press Releases from Mordor.
Stop blaming the victims.
I would sit tight and find out who amongst your Canadian government officials you trust and who seem to be working on the problem. Sit tight and don’t do anything stupid.
30 Year IRS Vet
@ Steve Thanks for that. Here I happen to agree. The Canadian government has said it won’t collect FBAR fines from anyone or taxes from dual citizens. We need to sit tight on this protection.
@Steven: I agree with Petros. Information coming out of IRS is the most “fear-mongering” of all. None of their communications indicate that their target is NOT people who have been living outside their borders and are citizens of other countries. Nothing in their communications indicates people who have established long-term savings and investments from decades of living in another country will NOT be affected by FATCA. Nothing in their communications tells us our child’s education savings plans (RESPs), our own or our child’s registered disability savings plan (RDSP), our registered retirement savings plans (RRSPs) or our pension plans are exempt from FBAR or FATCA requirements.
Nothing in either IRS or DOS communications confirms what many of us were told by Consulates decades ago: Termination of our US citizenship when we voluntarily became citizens of other countries was permanent and irreversible. They told us we would change our minds. Instead, they changed theirs–seemingly for financial reasons. And you wonder why we mistrust and fear them?!?
IRS could clear up much of the fear factor and improve their image around the world by issuing simple statements. Instead, IRS issues statements which pumps up the rhetoric. We are told to “come clean.” Anyone living, earning, saving and investing outside the hallowed US border is labeled a “tax cheater” or “tax evader” and is threatened with draconian penalties. Being painted as a criminal by our country of birth after we have led law-abiding lives is simply outrageous. Unfortunately, the result is “US persons” are now among the most anti-American people in the world. The very people who could help the US on an international level are now doing the opposite.
I hope you will seriously consider some of our comments and understand why our productive, responsible and calm lives have become filled with fear and anger. Through IBS, we are turning that anger into resolve and determination to fight this–and to help each other.
@Steve Mopsick: “I would sit tight and find out who amongst your Canadian government officials you trust and who seem to be working on the problem. Sit tight and don’t do anything stupid.”
And for US citizens living in the any of the other 192 countries?
@Watcher, unfortunately it would seem that requires a country by country appraisal. Canada having so many US persons needed to make the first statement of protection.
“Fear is the foundation of most governments.”
– John Adams
When Canada does work out an agreement I would love to see it made public so the rest of the world can know how to protect its US persons.
@ Steve
Thank you for insight and participation! It is generous.
For Steve (and any of the other cross-border pros reading this) here is a basic case for commentary without prejudice, based on a composite of several people featured in various news reports:
A 60 year old Canadian citizen now widowed. Born in US to Canadian parents while they are graduate students there, returns to Canada as child, becomes Canadian citizen as young adult. No US passport, never worked there. Considers herself utterly and solely Canadian.
Works in Canada, has Canadian RRSP (mostly Canadian mutual funds), RESP for the kids, TFSA. Also small incorporated consulting business on the side, and has done well on the capital-gains exempt sale of a few principle residences. Totally compliant with Canadian taxes and looking forward to retiring on life savings of approx. $3 million, accrued through lifetime of hard work, good investments, inheritance from deceased Canadian spouse, and real estate appreciation. No US assets (not even equities – too risky).
Very surprised to discover last year that she could be considered a US citizen. Also has never received any kind of US tax notice or collection request. Same brokerage & bank for last 30 years, no record of her ethnic nationality (US birth). However, one accountant has informed her that retrospective compliance with US tax at this juncture could consume 30-50% of her savings, utterly complicate her life and derail her retirement plans, which are based on investments in Canadian mutual funds and income trusts, and the appreciation of her sole principle residence.
Opinion:
1) Should this person volunteer information no one has ever asked her for or call attention to herself by renouncing / relinquishing at a US consulate
2) Can the US collect taxes or penalties from her in Canada and what is the mechanism of enforcement?
(I understand that Canadian courts reject foreign revenue claims, and Canadian Minister of Finance affirms that Canada will not assist collection of US taxes or penalties from Canadian citizens).
3) How many cases have you seen where the US has successfully collected from similar resident Canadian citizens, (no US income, residence or assets) ? Have any cross-border tax specialists seen this kind of collection?
Finally (and I understand you may not be able to answer this) Considering this imaginary client’s best interest, what would you advise her to do, again without prejudice?