Banks Deny US Student an Account
October 7th 2012
From T. Hirsekorn – No account for pocket change: Out of fear from lawsuits, Swiss banks turned a 16 year old US student away.
The 16 year old was rejected by many banks and doesn’t want her face to be shown (image: 20 Minutes)
The tax dispute with America released a strong defensive response from several Swiss banks. Some banks are following a compromise-free path to avoid any conflict with the IRS, such as with the case of Christina (16). The exchange student, who lives in Zurich, wanted to open up an account so that her parents could give her an allowance of 60 CHF per month. But Raiffeisen abruptly turned her away by stating that no Swiss banks accept US persons anymore. “Unbelievable! Given that I’m not even taxable in the US” stated Cristina annoyed.
Raiffeisen justified itself by stating that it is currently not accepting US citizens as new customers. “We cannot come to the conclusion if kids are taxed in the US or not”, explained speaker Jens Wiesenhütter. After the Wegelin affair, banks are avoiding any possible risk that could derive from US business relations, assumes the economic professor, Walter Wittmann.
The Zurich cantonal bank, Coop bank and Clientis also refused to open an account for Cristina. Credit Suisse didn’t even want to reveal its business policy. “Every bank can, according to their policy and contract flexibility, decide with whom they are willing to do business”, explained Rebeca Garcia from the Swiss Bankers Association. More liberal are UBS, Postfinance and Migrosbank. “Christina may have an account with us as an exchange student”, confirmed the UBS spokesperson.
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I quickly translated this during my lunch break, so please excuse any mistakes
Source: 20 Minuten Online
Don’t forget that there are more than one thousand immigrant students and faculty members at each and every US University, most of whom have some factor that requires them to report to the IRS. Most of those immigrants grow and stay longer in USA, alternatively return home as US persons.
None of those immigrants have received instructions that they must report their home bank account that holds their school funding to the IRS.
All of them are new FATCA violators, subject to $10,000 per account per year, until they learn what they are and are subject to $100,000 per account per year.
None of them are treated fairly by the US media nor by the congress of presidency, who are deliberately and knowingly entrapping them.
“Christina may have an account with us as an exchange student”, confirmed the UBS spokesperson.
Megabank UBS stands ready to hoover up any business cast off by its former small Swiss bank competition who are no longer able to compete due to laws that UBS US head Robert Wolf, Obama BFF, helped lobby for in exchange for massive bailouts.
If I were a bank manager, I would not welcome these kinds of risks and costs either. It’s a little heartening to have a homelander feel the pain, this is a relatively trivial situation. Most of us who live outside of the USA are facing profound problems.
@Mark
All good points. I have wondered as well, if your non-US child is in your will and if that child becomes a US person by spending more than 183 qualified days in the USA over a 1 (up to 3) year period, then if you should die, the US would be entitled to an inheritance tax on any amount that the child receives from you that is over 60kUSD as that child is not a US Citizen.
Does that situation also require that the parents of the foreign exchange student must also comply with FATCA obligations? From a scenario proposed by Wegelin’s CEO, the answer would be yes.
Each university has 3 international study locations which are integrated into the system. For each location, there are 2 professor-advisors with local responsibility who have signature authority over the local bank accounts. In addition there are 2 accounts payable lowly schmucks who make accounts payable checks to local vendors. There is at least one university finance manager who has final signature authority over the top. Each of those named persons is responsible to report the highest amount of the account value on their personal FBARs, and likely also file an 8938. If they don’t, they owe $10,000 per account per year if they were unknowing of their responsibilities.
Besides the 3 whitebread locations mentioned above (UK, France, Italy, or Spain), there are now 8 different choices to study outside of the university’s system, paid separately outside the university system, but they have an agreement to take in the grades and credits. The parents of the children must somehow pay those universities directly in those nouveau locations (China, Japan, Burma, South Africa, New Zealand, wherever). The best way to do that, would be for the parents to set up a bank account in their own name in one of those countries, where they could send the year’s tuition money + living expenses. It would be impossible for them to keep that value under $10,000. If they were to succeed to keep it under $10,000, they would be prosecuted for “structuring” their amounts.
*At 60 CHF flow per month the bank will be losing money on her. And to have the right to lose money, the bank exposes itself to US law. Sounds like a no-brainer to me.
Ok, so I was recently in Switzerland and 60 CHF would have bought, what, a few sandwiches and maybe a bottle of water? If I were the bank I wouldn’t open her account either for such small change with all that is going on.
Yesterday’s “Basler Zeitung” (BZ) carried an interview with Daniel Mitchell, an economist at the Cato Institute. Here’s a translated excerpt (emphasis added):
“BZ: Switzerland has already practically relinquished its bank customer privacy laws towards the USA.
Mitchell: Switzerland was placed under enormous pressure, and the American authorities behaved in a grossly unfair manner. There were threats made against the banks as well as against bank employees. The sovereignty of Switzerland was in no way respected. The greed of the politicians for always more tax money appears today to take precedence over the law. I considered this approach to be terrible: the USA treated Switzerland worse than North Korea. Unfortunately Bern gave in. Certainly it is not easy as a small country to maintain yourself on the international stage, but one should consider such as situation as a challenge.”
http://bazonline.ch/wirtschaft/Die-Schweiz-ist-eine-loebliche-Ausnahme-/story/21873568
A commentary in Wednesday’s “Basler Zeitung” by Daniel Zulauf (translated):
“Simply no Americans!
It is indeed remarkable. Julius Bär is buying an American bank from Merrill Lynch and is reserving the right to exclude those customers who have an American passport or only have the status of a US Person. The reason for this is evident. The Zurich-based asset management bank has been a target of the US Justice Department for two years due to suspected assistance of tax fraud and cannot afford even the smallest mistake. … Solely for legal and similar costs the bank has already paid out $20 million, explained CEO Boris Collardi yesterday in London to a group of financial analysts. The amount is terrifyingly high when one considers that Julius Bär bought itself free in Germany of any potential criminal processes with a payment of Eur 50 million. Collardi’s mention clarifies that the American authorities will demand a clearly higher price, even though the business with German customers is far greater than the US business ever was.”
As a comment, Julius Bär is a bank specialized in private banking and asset management. It is not a retail bank where the average Fritz walks in, opens an account and gets a toaster as a gift. Still, this commentary demonstrates the nervousness with which Swiss banks view US Person customers, including dual citizens. It is understandable why the Bern Embassy is overloaded with renunciations.
@zuludogm, The US (at the federal level) does not tax inheritance, it taxes estate and gifts. This means that the estate of the decedent and the gifts from a donor are taxed if the decedent or donor themselves are US citizens or residents. The only case when a recipient is taxed is if a US citizen or resident receives an inheritance or gift from a covered expatriate. Also, nonresident foreigners are taxed on estate or gifts that are real estate located in the US.
Days spent in the US as a foreign student are not considered days of physical presence for tax purposes, so foreign students are not considered US residents, and therefore not subject to FATCA, even if they remain in the US the whole year. This exception also applies to foreign diplomats.
The US tax code explicitly says that the definition of residence (which includes the 183-day rule that you mentioned) does not apply for purposes of the estate and gift taxes, but the code doesn’t give any other definition. The IRS rules that, in that case, residence means domicile. So in your example, the child would probably not be considered a US resident for estate tax purposes if the stay in the US was temporary. If the child is considered a US resident, the tax would occur the other way around, that is, if the child left estate or gave a gift to someone else.
Exemptions:
In case of US citizens or residents, there is currently an exemption of $5 million on estate and lifetime gifts. Unless Congress acts this year, this exemption is set to decrease to $1 million in 2013.
In the case of US real estate owned by nonresident foreigners, there is an exemption of $60,000 on estate (that’s the value you mentioned) and $13,000 on gifts per year.
In the case of US citizens or residents who receive estate or gifts from a covered expatriate, there is an exemption of $13,000 on estate or gifts per year.
More information: http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Tax/us_tax_U.S._Estate_and_Gift_Taxation_240811.pdf
I think this disparity of exemptions is absurd. I also think that the entire concept of taxing inheritance, gifts or estate is wrong because those are things that have already been taxed as income at some point. The estate and gift taxes were almost repealed by Congress in 2001, and several congressmen still support a repeal. I hope it happens soon.
If a US citizen or resident receives inheritance or gifts from a nonresident foreigner (who is not a covered expatriate), they are not taxed, but they must be informed in form 3520 if they are over $100,000. The penalty for not informing this is 5% of the value of the inheritance or gift, per month, up to 25%. This penalty of 25%, the FBAR penalty of 50% and the penalty of 35% for not reporting foreign trusts are the only penalties in the entire US tax code that apply to the value of an asset and not to the unpaid tax, and in fact the assets to which these penalties apply are not even taxed. I’m starting to wonder if these penalties are actually taxes in disguise.
My points above relate to US citizens studying abroad and paying their tuitions overseas, which requires an “offshore” bank account.
Also, a high percentage of foreign students in USA are paid research assistants or graduate assistants. I can’t see that they wouldn’t have to file a tax return on their graduate assistant income if it passes the threshold (I did on mine during the 1980’s) .
@Mark Twain, Foreign students on assistantships report US income only, and pay taxes on that income if it passes the threshold. They file form 1040NR. But since they are not considered US residents, their foreign income, if they have any, is not taxed by the US, and they don’t have to file reports of foreign assets like the FBAR.
@Shadow Raider. Are you sure they are not considered residents? I thought residents meant you lived here, regardless whether you are on a H1-B or F1 visa. I am pretty sure H1-B visa holders for example must file FBARs.
@Christophe, Yes, foreigners on worker visas such as H1B, tourists and even illegal immigrants are considered residents for tax purposes if they are in the US for many days during the year, and if so they must also file FBARs. But there there are four categories of foreigners that are exempt: diplomats and employees of foreign governments or international organizations, teachers and trainees, students, and athletes in charitable sports events. The full details are in section 7701(b) of the Internal Revenue Code: http://www.law.cornell.edu/uscode/text/26/7701.
Correction: There is another penalty that is applied to the value of an asset. It’s a penalty of 10% for not reporting transfers of property to a foreign corporation or partnership. Again, the property itself is not taxed. However, in this case the penalty is limited to $100,000, while in the other three cases the penalties have no limit. All four penalties have the following in common: they are related to foreign activities, they apply to the value of assets and not to unpaid tax, and the assets themselves are not taxed.
I understand that the foreign assets can be used to generate income, and the US is concerned that it may not find out about it. However, considering that the penalties are only applied when the US does find out, and in that case it will charge the tax too, including already high penalties and interest for late payment, it doesn’t make sense to charge additional penalties for nonreporting, which are unrelated to and usually several times the unpaid tax. It is possible to evade taxes also from US income, and such activity does not have penalties based on nonreported assets. For example, if a taxpayer doesn’t report rental income, the penalties are assessed on the unpaid tax, not on the value of the rental property.
But I see that lowering penalties for tax evaders is not exactly a popular idea, even if it is fair.
http://hodgen.com/a-quick-tutorial-on-foreign-students-in-the-us-tax-law-and-the-fbar-form/
re-reading this implies that you are right, with the complaints the commenters wrote in below