FATCA Discussion Thread (Ask your questions) Part Two
Please ask your questions here about FATCA.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See FATCA Discussion Thread (Ask your questions) for earlier discussion.
Here is a pretty good guide (though not a particularly easy read)
http://www.pwc.com/im/en/publications/assets/pwc_gir_newsbrief_-_uk_fatca_iga_guidance_2013-01-09.pdf
In the streamlined procedure program, we have the statement that those using the program are “high risk” and “low risk”. No doubt, someone with lower amounts and simple situations will be “low risk”.
The high risk people are people who have significant savings, either due to their age, conservativeness, or other circumstances such as having lived in numberous states, er, I mean countries.
The argument versus risk and programming cosTs is relevant. In the places I have worked, the competence levels of programmers is often under question, either Contractors or employees are often motivated by things other than logic or diligence. Given that the banks choose to lobby their governments for an IGA rather than against FATCA completely, hence having the same FATCA compliance COSTs—– indicates that they do not have a high level of intellectual capability regarding the use of their risk and ROI matrices.
But yeah, if what we are talking about is a poor guy or gal 30 comments back, then 15k today is certainly “low risk”.
PErsonally, I would put “low risk” into a matrix over the infinite course of years that FATCA is intended to last, consider how “nonwillful” applies after a couple of those years, and evaluate my long term options.
Let me try to explain this again. One cannot assume that all information pertaining to a customer is contained in one big database, and you just need to pick the attributes you’re interested in. If that were the case, things would be easy. The algorithms to do this are not the problem. The problem is that the IT systems containing the relevant information are, in all likelihood, part of a distributed, heterogenous landscape which has grown over the course of decades. System integration is the keyword here, and that’s a complex – and expensive – undertaking. If there is not a compelling reason (i.e. legislation to that effect) requiring banks to take account balance threshholds into consideration, you can rest assured that they will not do so.
So, going back to the example of the person with 15K in an account. It will not be the case that someone will get that information and decide to report on them anyway. Instead, they will only the US indicia and no information regarding account balances. For all they know (for reporting purposes), the customer could have $100 or $10.000.000. From the banks perspective, it just doesn’t matter.
I have no doubt that information is not stored in one big database. However, I don’t see a big dependency on any sort of algorithmic logic except maybe in the cases of finding the balance in the first place, especially with aggregation, foreign trust ownership, or other entity ownership, and most sources seem to confirm this will be the biggest challenge. All the indicia that I’ve seen seems pretty straightforward, and can should be able to exist as values in a table. So once you have your list of customers and their account balances, what’s the technical hurdle in filtering your output?
Again, I may be speaking out my a** because I lack understanding of how FATCA reporting is supposed to work in the first place. I know there is the whole bit about flagging recalcitrant accounts and doing the actual withholding, all of which certainly WILL be a pain.
@notamused… I went back and re-read your original comment. So what you are saying is that rather than report on balances at all, the banks will choose to just report on the list of customers with US indicia and nothing else?
Just being devil’s advocate now, but if that’s the case, what’s the value to the IRS? Surely they know they can’t follow up on everyone and would wish to target only those worth pursuing (once they identified a lack of FBAR for that person/account).
@HKGS
“Just being devil’s advocate now, but if that’s the case, what’s the value to the IRS? Surely they know they can’t follow up on everyone and would wish to target only those worth pursuing (once they identified a lack of FBAR for that person/account).”
Well, we’ve seen a fair share of reports here at IBS from people who have little or no tax obligations, but whom the IRS has subjected to extreme penalties for non-reporting, so I think from an IRS perspective, even the minnows are “worth pursuing”. Whether the IRS is in a position to process all that information in the first place is of course an entirely different question…
@HKGS
@notamused… I went back and re-read your original comment. So what you are saying is that rather than report on balances at all, the banks will choose to just report on the list of customers with US indicia and nothing else?
Exactly.
……here at IBS from people who have little or no tax obligations, but whom the IRS has subjected to extreme penalties for non-reporting….. sorry, actually that statement is a bit too extreme . The ones that told their story here had tax obligations > $5K
No tax obligations ( 0 interest income) with unreported accounts will get you you a warning letter . If you fall under the “No de minimus exceptions to unreported income (FAQ 33) “ than FAQ 52 should help.
@notamused
In that case, it’s going to cause so much administrative overhead that FATCA is doomed to fail by that alone. In that case, I’d almost prefer it, if only to watch the train wreck. Like for instance the first privacy lawsuit from people in the know asking why their sub-50k account was disclosed to a foreign entity. However – and it’s solely my opinion – I think the IRS is looking for more than a giant dump of customers that they then have to follow up individually.
Regardless, at some point the thresholds ARE important as well… per the rules, the account value appears to trigger different levels of due diligence on the part of the bank. As such, they’ll need to have made the balance association already.
@MikeT… you took the words right out of my mouth. I tend to agree with others who hold the opinion that the IRS is more of a heavy, blunt instrument than a precision tool.
Just to pick nits, what’s your opinion on an account that had VIRTUALLY no interest (less than $1USD). It’s more than zero after all 😛
< 0.50 $ just send the FBAR a.k.a Q.D and you are done. For everything else there is MasterCard 🙂
I will let you know if I hear anything about my sub zero disclosures. But honestly there is a line somewhere here but nobody knows yet. If it were me I would just close “dormant accounts“ with less than $10 p.a of interest and play a round of golf.
btw. as an update : it appears that currently Minnows are a good fit for the streamlined process whose liability exceeds the threshold ($1.5K p.a) by a relatively small amount, $1,000 or $2,000, or even as much as $3,500 have been excepted .
Below is a translated article from the Swiss “Inside Paradeplatz” on-line newspaper (Feb 25, 2013), following the Swiss administration’s decision to sign a FATCA Agreement with the US. This daily newspaper focuses on the financial sector in Switzerland and is known for breaking stories. The article is rather provocative but also factual:
“Idiocy from the House of Obama arrives in Berne
FATCA is a tax treaty, not a fat cat, but an expensive bureaucratic monster; Swiss administration pets it.
25th February 2013 / 07:34 / hg
FATCA is a new US law, which the Obama administration wants to prevent tax evasion abroad by American taxpayers. To implement FATCA in Switzerland, the Swiss administration wants to complete a treaty with the US.
Thereafter, the government will enact a FATCA law.
The renowned American tax attorney, Herman B. Bouma, called the law “sheer idiocy” in the Tax Management International Journal.
The 400-page instructions are arrogant and bullying. It serves to destroy international relations, is contrary to the laws of other countries, bad for the American economy, it brings huge administrative burden to foreign banks, causes shame to Americans abroad and is totally inefficient.
It will bring to the US government over 10 years total only about $ 9 billion and it would fund the current US budget deficit (around 900 per year billion) fund for 10 hours.
It is not about money but about the control of citizens by the powerful state.
Under FATCA tens of thousands of foreign financial service providers must report to the US tax authorities, the IRS, from 2014 on the identity and assets of their US clients.
As leverage for the enforcement of FATCA by the US is a 30 percent withholding tax, which is levied on all income and sale proceeds of US securities transactions, which can be avoided only if the financial services company enters into an agreement with the IRS in which it agrees compliance with required FATCA provisions.
FATCA is thus based on agreements between the US tax authorities and thousands of non-US financial institutions. Governments are not part of FATCA basic concept.
FATCA is contrary to international legal principles. The US has, however, the political and economic power to enforce its will.
Swiss banks must also live with this situation. The majority will complete agreements with the Internal Revenue Service.
It would be thought that local banks would have the ability to refuse American customers and manage their customers without US securities. Then they also need not to sign a FATCA contract.
Annex II to the treaty, however, requires “financial institutions with local clientele” to accept US citizens (“expats”) who are resident in Switzerland as customers.
The refusal to deal in US securities would mean a reduction of investment opportunities for smaller banks. For the majority of Swiss banks, the question is, however, not “FATCA or no FATCA?”.
For Switzerland as a sovereign state the question posed is: “FATCA with or without a treaty”.
The Swiss administration has consented to the treaty with “simplification” and “facilitation” for Swiss financial institutions.
The Swiss administration’s alleged facilitation remain modest, often unclear and in large part available without a treaty.
In contrast, the disadvantages of the agreement for Switzerland as a sovereign state are drastic:
– The FATCA agreement further erodes banking privacy. This happens even without the agreement, but Switzerland gives its blessing to it through the agreement. The agreement reads: “Considering that Switzerland […] supports the introduction of FATCA.”
– Article 1 of the Agreement gives as its purpose “to implement FATCA with respect to all Swiss financial institutions.” This presents FATCA not as a bother to Switzerland, but that Switzerland also supports the implementation of the “idiotic” rules and regulations and actively makes its adherence a requirement under Swiss law.
– The Swiss Confederation forces banks to raise a US withholding tax of 30 percent on the proceeds from sales of American securities held by Swiss nationals in Switzerland. By obligating small Swiss community banks, based in Switzerland, to accept American citizens as customers, Americans become privileged over all other nationalities. No Swiss bank has been required to accept people of a particular nationality as customers. That’s pretty perverted.
– The FATCA agreement gives priority to the fulfillment of American rules over Swiss law. For example, it repeals Article 4 of the Agreement on the Article 271 of the Swiss Penal Code (Prohibited Acts for a Foreign State) in favor of the United States.
Practically FATCA allows for the automatic exchange of information even if it is formally somewhat clouded. Officially the Swiss administration rejects the automatic exchange of information.
– The agreement is expected to be “dynamic”. If the US changes the rules, they apply automatically without modification to the treaty.
– Switzerland has not received anything in return by entering into the agreement with the United States. Switzerland has not reached the desired level of negotiated balance as in the past. The agreement, which refers in the preamble to the strengthening of the “mutual assistance in tax matters”, is diplomatic speak.
The agreement with the US has the effect of precedence with other countries, especially to the EU:
– The EU wants an automatic exchange of information in tax matters with Switzerland. Since Switzerland has granted an automatic exchange with the United States in fact, she cannot now deny the EU the same.
– The EU wants Switzerland to accept new EU laws “dynamically”. If Switzerland permits implementation of new rules from the USA “dynamically”, she cannot refuse the EU.
The FATCA Agreement and the FATCA law bring, at best, minimum relief to the Swiss financial institutions.
The agreement brings, however, severe disadvantages to Switzerland, as a sovereign country.”
http://insideparadeplatz.ch/2013/02/25/idiotisches-aus-dem-hause-obama-kommt-an-in-bern/
@Mike, I’d imagine that a substantial percentage of minnows could have inadvertently created annual U.S. tax bills in the $5000 range if their investments were mainly in local mutual funds. Especially during bull markets because of P.F.I.C. taxation on phantom gains. This is what happened to me. I’d done all my financial planning as a DIY investor and filer; I’d assumed that as I was permanently settled in the U.K. that I could make use of the British investnent vehicles. I especially believed this because I have British citizenship so assumed I enjoyed the same rights as native born Brits. Also hadn’t known about the saving clause in the U.S. tax treaty for it’s citizens.
So I got hit both because of P.F.I.C. tax rules and because the U.S. doesn’t recognize tax-free savings/investments accounts where I live. Double whammy. Plus the fact that I’m not allowed to invest in U.S. I.R.A s as I’m living abroad. Plus the professional fees of over $30,000 to clean up the mess from completely legal accounts in England.
I also suspect that many ordinary US persons in countries with expensive real estate could wind up facing substantial capital gains taxation from the sale of their primary residence.
As an aside, I also wonder if there will be cock-ups with former citizens continuing to be flagged as U.S. persons with the upcoming 30% withholding tax once it’s implemented. After all, they will be overwhelmed with data.
Someone renouncing this year will still have to file one more time next year; plus, this final tax return and F.B.A R. will have at least a three year and six year open statute of limitations respectively. They are thus still vulnerable for several years even though they’ve officially expstriated.
The Swiss are planning to start an initiative to ground bank secrecy in their federal constitution.
German article for those interested: http://www.handelszeitung.ch/politik/bankgeheimnis-initiative-kommt
@Mike T… I would actually love to QD (three years back) as it’s the only visible thing I have hanging out there, but that account now holds quite a bit of dough (dumping ground for my foreign home sale). I will definitely FBAR and 8938 it for 2012, but my CPA recommended a go-forward approach (though he admitted there was probably little risk in QD, he was in the “why attract attention?” mindset). That being said he’s kind of old-school so if think otherwise, I’d appreciate any thoughts.
@Mike, my point is that I believe that my situation will have turned out not to be that unusual; if I’d been a non-filer, would imagine that the streamlined program should have been willing to accept me as low-risk. My accountant believed I had reasonable cause and if the IRS have any common sense, they’ll realize that many many Expats and accidental Americans will have unwittingly created huge tax headaches due to having been oblivious to all the anomalies.
With the best will in the world, it’s almost impossible to do normal retirement planning living abroad because the tax systems are not going to be incompatible. We can’t win which is why I finally decided to hand my blue passport in. I refuse to be burdened with ongoing compliance costs of $2000-3000 each year.
I used to think this was a dishonorable way of thinking but have now concluded that it’s unreasonable to be effectively shackled with tribute membership fees to prove my undying fealty.
@H K G S, I did a quiet even with my situation and it’s been almost two years. So far, I seem to be OK though I’m not quite out of the woods yet; however, was told that most audits take place within three years of disclosure.
I also would have thought that I we would have heard from F.I.N.C.E.N. if they were going to assess F.B.A.R. penalties. It will be interesting though to see if they don’t start aggressively assessing fines once everything really starts rolling.
As I understand it, the authorities will start getting a mountain of information once reports start in spring 2015. It will naturally take time for them to sift thru and prioritize who to pursue. But could see audits abroad rising substantially by, say, 2017.
@monalisa1776…. yes of course absolutely and I assume you had “work“ income as well.
Regarding real estate it depends where you live …. in my country of residence the capital gains tax (after exclusion/deduction) is actually higher than the US 🙂 but that may change going forward.
I can understand that you filed DIY style ,why wouldn`t you . In London using a local CPA – you pay for your 1040 $1500 – 2500 and that adds up over the years. And will there be cock-ups going forward with former us citizens – YOU BET !
@HKGS ……………..“why attract attention?” mindset ……………… EXACTLY ! You have think of this whole process as self-defense nothing more – nothing less. Most people here totally overestimate the intellectual property of the IRS and its staff !
Over and over courts have said that there is nothing sinister in so arranging one`s affairs as to keep taxes as low as possible. Everybody does so,rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands, TAXES ARE ENFORCED EXTRACTIONS, NOT VOLUNTARY CONTRIBUTIONS. To demand more in the name of morals is mere cant.
@monalisa… for sure, it’s a crap shoot and without a lot of historical info, especially in my position where an account goes from 0-100mph in a year. This brings up a shortcoming of the FBAR (and this is not a suggestion to add it) which is that there is no way to document that “hey, this is a new account” or not. I’ve always assumed that the Treasury thinks that if it shows up suddenly, that it’s new… or that they don’t even check… OR that they only go back and check as a backup if something is amiss with the return. What a bummer then that 8938 asks you that very question… probably the only reason I secretly want to do a QD.
That being said, when you did it, did you have a lawyer write a cover letter? It’s a bit harder for me as I think in your case you hadn’t filed ANY FBAR’s previously right? In my case, I’ve been pretty good, except for this one account that I messed up with because I had thought it was 10K per account (not in aggregate… single account numbers can have multiple sub-accounts with the same number, and that’s how I misread the aggregation). Besides that like I mentioned, it made less than a buck per year.
@ monalisa1776 …. you followed the right path with QD. Why make things complicated and offer the IRS unnecessary grounds for discussions or interpretations through the SP . Stay the course !
@H.K.G.S., my accountant is an enrolled agent who was very generous with her advice. They are street-smart. She warned me of all the risks with quiet disclosure but pointed out that my situation appeared unintentional, especially as I’d taken steps to rectify it as soon as I realised.
I decided to not use an attorney though realise this could be deemed risky but she is professionally qualified to have ‘power of attorney ‘and thus represent me to the IRS if need be.
I figured that O V.D.I. would have ruined me after paying out the miscellaneous penalty and all the attorney fees. I’m guessing I would have lost about $200,000 vs $50,000. I figured that though I’ve still suffered which for me is a huge hit, that at least I stand a reasonable chance of not suffering life-altering fines. On the other hand, the official O V D I could have bankrupted me. Why willingly turn myself into fertilizer???
I can’t figure out if attorneys like Stephen J Moodily would thinking me as an evader and traitor or if he is just a main instigator of the Compliance Machine. I suspect that he started off fairly sympathetic to our situations but that he fell out with some of the posters here at I B.S.
I share your fears that because my situation is anomalous that I could be turned into a scapegoat if I piss off the authorities which is why I will always be most respectful towards the IRS or f bar people.
My accountant wrote what I thought was an excellent begging for waiver of penalties based on reasonable cause. She has had regular contact with the IRS tax attache in London and has been in the business for over 25 years. She said that no minnows she’s ever known of have been hit with f bar fines or nasty audits.
I can’t give you advice but suspect that they would accept even a personal reasonable cause letter from you without your having to she’ll out for an expensive attorney but only you can decide that. I suspect that your best bet may be to comply going forward. You could always amend too.
I also know what you mean about sub accounts within accounts. I thus don’t think it would be unusual to have more thanks 25 accounts. I also think though that you have a strong case for arguing that you had thought that the reporting threshold for f bar was $10,000 per account rather than in aggregate.
I do share your concern though about how incomplete filing of either 1040 ot f bar could appear less innocent than a complete non-filer. What a mess.
@Mike, yes, I have already made the irrevocable decision after much soul searching and understanding from my family back ‘home. As I’ve grown to understand things better, I’ve concluded that it’s the ongoing compliance burdens and costs which were the deal breaker for me, more so than the IRS giving me lots of trouble. Also doubt I’d suffer much double taxation going forward; However there’s a whole industry (IRS, accountants, attorneys, etc. in bed) and we’re mere collateral damage.
I just pray that I’m not going to suffer hiccups along the way, especially as I still fear that having renounced could raise red flags. I will give Pacifica more information later this year several months after getting the CLN (assuming I get it!!! 😛 )
I still feel abandoned by my own country of birth and was appalled with Democrats Abroad ‘s recent comments about the ‘privilege (vs right) of living abroad ‘…I’ve concluded that unless you’re rich and powerful that the U.S. could care less about our hardships.
re HKGS at 9:13
(If I am understanding you – I am looking at the middle of the thread)
According to a CPA I talked to about this – less than one dollar does need to be reported as taxable income. Therefore, the failure to report the account should mean no tax liability. Therefore if no taxes are owing, the OVDP rules suggest that you just file the FBARs and there will be no issue.
That said, if it isn’t obvious to all, under no circumstances should you actually enter OVDP. Of course, the latest IRS “bait and switch” has effectively ended the program anyway.