FATCA Discussion Thread (Ask your questions) Part Two
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yes you are right, I was just looking at it from an “expat“ point of view – if you include all the immigrants/resident aliens that number falls below 0.1% 🙂
talking to practioneers recently came up with a lot of different opinions about those “dirty little details“. I would summarize ,1. that no penalty will be imposed where no interest was earned and reasonable cause did exist plus there is a high degree of litigation risk because of good non-wilfull arguments especially when there are no assets within the US. 2. no penalty when you filed a 1040 plus reported interest within schedule B but no FBAR 3. no penalty when you filed a 1040 plus reasonable cause and the account had no income to report, and there was no FBAR filed 4. this is where it gets tricky when no return and FBAR was filed because no or very little income did exist
my impression is that times are changing a bit in the sense that a lot more so called Minnows “act up“ and request a “warning letter“ instead of just giving in and paying up.
The threat of opting out or 8 years of civil field audit is slowly changing to “sue me if you can“
I would not be surprised that pretty soon appeal courts will get busy – not that the commissioner will go public with the real facts here anyway
@Mike Tarantes
It is good to do some math (meaningfully arbitrary calculations) when every you see single stats presented by the IRS as statements of success. I did that in my letters to IRS officials when I was going through the OVDP.
Bottomline, at the beginning of these OVDP efforts, to measure success later, you need to know what was their estimate of total FBARs that should be filed in the universe of those that possibly have qualifying offshore accounts
After 4 years of offshore jihad and FATCA Fatwa, if compliance was the objective (and that is arguable) what is the number of FBARS now filed?
By my count the number has roughly doubled. If the goal is only to create clerical work for some Treasury official in Detroit, mission accomplished, but if the doubling only represent a very modest up tick in compliance as compared to those that should… IE goes from 3% to 4%, you can’t be wildly enthusiastic about your compliance initiatives.
Any business looking at such a massive project would, what is my ROI for all this effort? Frankly, I think it probably sucks, but then these guys at treasury are not interested in cost vs benefit analysis. This is all about ideologues and Fatcanatics who care not one whit about ROI. All they want to do is create something that is seen as “getting the rich” Actual results do not matter. Just pick and chose a single stats that sounds good, send out a press release, and NO journalist will ever question. They will just reprint the press release and delude themselves into think that this is journalism.
@Badger, my accountant believes that I need to no only list the obvious types of accounts but also fixed-term savings bonds that hadn’t been officially closed but which still produced a couple cents interest; any credit cards that had a positive balance and/or produced cashback; store cards; travel cards; and even pre-paid telephone sim cards. paypal, alertpay, etc. This is taking it to extremes but they think it’s safer to over-report just to be on the safe side. It’s also why I had over 25 accounts and was able to submit the shortened version of the FBAR.
As she sensibly points out, it would be ludicrous for FINCEN to hit me with $10,000 penalties for each single account which is technically what they can do. She believes (as I do) that it would be a breach of the 8th Amendment in that it would be cruel and unusual punishment. She felt I had a very strong case for reasonable cause, unlike that CPA in Florida that Just Me dug up!! 😉
If they want paperwork, believe me, I’ll give them PLENTY of paperwork 😀
Monalisa. Way to go. baffle them with BS. Actually I think their reaction, when they see you listing prepaid sim cards and so on, might be to get really pissed off at your wasting their time and try to find a way to get even. Your accountant is way over the top. Is she charging by the account or the number of pages or the hour? In any case she must view your account as a life annuity.
I actually filed the FBARs and filled out most of the 8938, itself. The reason she was comparatively expensive was because I had quite a few local mutual funds that required complex PFIC calculations. She also had to determine both foreign tax credit and foreign tax credit carry-over. AND going forward, It’s working out form 1116 which will continue to be the toughest part. It’s truly a bitch of a form.
@monalisa1776, now that is stringent – but with the FBAR, I guess better to put it on than not. Although it would be oh so rational if they clarified whether the penalty was per account per year, or just per year. Can’t they see that 10 accounts with $10, vs. 1 account with $100 makes a ridiculous difference in penalty that just seems absurd? They want all their options open, but it looks more and more like an enforcement approach that is cross between Kafka’s the Trial, Waiting for Godot, 1984, and Animal Farm in a blender.
Let me know what form they want for the pennies I found under the sofa cushions.
@KalC, re “In any case she must view your account as a life annuity.”
Some of us have already funded a four year BA.
@Badger: Let me know what form they want for the pennies I found under the sofa cushions.
Too easy!
http://www.irs.gov/pub/irs-pdf/p525.pdf
“Found property. If you find and keep property that does not belong to you that has been lost or abandoned (treasuretrove), it is taxable to you at its fair market value in the first year it is your undisputed possession.”
I once found a small bag of weed just outside the front gate of my house. I wonder which penalty would have been larger, for reporting it, or for not reporting it?
@Badger, I believe she felt that it was safer for me to make a completely transparent disclosure in my situation due to past incomplete filing. Had I simply not known I had to file, it probably wouldn’t have been as necessary; she was concerned that my situation might have appeared less innocent so thought it safest to literally turn out my pockets and plead for a waiver of penalties.
She (as I do) believed that I had reasonable cause because had assumed with the treaty that it was enough that I was reporting all my investment income and interest on my local tax return; I’d also mistakenly believed that the treaty would honour locally tax-free savings accounts and protect me from double taxation.
She believes that I should be able to argue that FBAR fines on each account for each year would be unconstitutionally harsh punishment, especially because even egregious cases haven’t normally received such draconian fines. I could conceivably see that maybe I should be punished with perhaps a single $10,000 penalty but that would be the maximum that I would have been (grudgingly) prepared to pay.
After all, I am a bona fide Expat; I’ve spent the past 25 years abroad, plus have dual nationality. I never even started filing a U.S. tax return till I was already living abroad and had been a DIY investor and filer, as are most of my fellow Brits; I was doing everything above board here but it was going ‘native’ that landed me in this mess.
No one had warned me; there was absolutely nothing written in the local Sunday money sections of the newspaper or in the British investment magazines. There isn’t the same culture over here of being expected to rely on advisors and accountants; I’d not been keeping abreast of all the U.S. developments and had just been filing a very basic tax return which I’d thought was sufficient to claim the foreign earned income exclusion and my U.S. sourced income. As my local tax return was around ten pages, had assumed that my U.S. return would normally be a similar length because my financial planning is vanilla to the British…
….As my local tax return was around ten pages, had assumed that my U.S. return would normally be a similar length because my financial planning is vanilla to the British…
I have mentioned this here before…. my local tax return is 11 pages but my 1040 > 60 pages (excluding copies of 1099s)
@monalisa1776… I do not want to give you any specific advice but I have developped a serious distrust with regards to CPA`s and tax lawyers in the last 3 month and I believe your CPA is clearly overdoing it with turning out your pockets ….. but I think you will be fine .
One misconception than many in OVDI have is how much the mitigation threshold is for Non-Willful (NW) Categories I and II. They may overestimate what their maximum penalty may be and therefore pay the in lieu of penalty when it is actually higher than if they were not in OVDI or OVDP IRM Exhibit 4.26.16-2….. Level II NW Mitigation Penalties for those that have balances PER ACCOUNT not exceeding $250,000 are either 10% of the account, or a MAXIMUM of $5,000 per account, i.e., the penalty per account should not exceed $5,000. Many in OVDI have assumed that if they have, for example, an account of $180,000 and another account of $200,000, these will be added together and they will be automatically in the Level III NW Penalty Mitigation. Level III NW Mitigation defines a higher penalty of $10,000 per account. Their assumption is incorrect. If the balance in EACH ACCOUNT did not exceed $250,000 then Level II NW Mitigation penalties apply PER ACCOUNT and if you are even a “SUPERMINNOW“ Level I NW penalty is $500 for each violation, not to exceed an aggregate penalty of $5,000 for all violations.
This just in…
Abkommen zur Förderung der Steuerehrlichkeit bei grenzüberschreitenden Sachverhalten von Deutschland und den USA paraphiert
Deutschland und die USA haben gestern Abend ein Abkommen zur Förderung der Steuerehrlichkeit bei grenzüberschreitenden Sachverhalten paraphiert. Das Abkommen verbessert den steuerlichen Informationsaustausch zwischen den Steuerbehörden der USA und Deutschlands. Das Abkommen schafft auch Rechtssicherheit für die deutschen Finanzinstitute im Verhältnis zum amerikanischen Fiskus.
Das Abkommen beruht auf dem zusammen mit Frankreich, Italien, Spanien und Großbritannien mit den USA ausgehandelten Abkommensmodell über Informationsaustausch beziehungsweise US-amerikanischem Quellensteuer-abzug im Verhältnis zu den USA (siehe hierzu die Pressemitteilung vom 26.07.2012). Es steht im Zusammenhang mit dem als FATCA bekannten Gesetz der Vereinigten Staaten und hat den folgenden Inhalt:
Deutschland verpflichtet sich, von den in Deutschland ansässigen Finanzinstituten die Informationen über für US Kunden geführte Konten zu erheben und der US-Behörde zur Verfügung zu stellen.
Die USA verpflichten sich im Gegenzug, den deutschen Steuerbehörden Informationen über Zins- und Dividendeneinkünfte zur Verfügung zu stellen, die die US-Steuerbehörde von US Finanzinstituten erhebt.
Die USA verpflichten sich, alle in Deutschland ansässigen Finanzinstitute von der Pflicht auszunehmen, mit der US-Steuerbehörde Vereinbarungen abschließen zu müssen, um in den USA Quellensteuereinbehalte unter FATCA zu vermeiden.
Beide Seiten werden die Voraussetzung für die baldige Unterzeichnung des Abkommens zu schaffen.
http://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2013/02/2013-02-22-PM16.html
For those who don’t understand German, here’s the corresponding Google translate URL:
http://translate.google.de/translate?sl=de&tl=en&js=n&prev=_t&hl=de&ie=UTF-8&eotf=1&u=http%3A%2F%2Fwww.bundesfinanzministerium.de%2FContent%2FDE%2FPressemitteilungen%2FFinanzpolitik%2F2013%2F02%2F2013-02-22-PM16.html
So the bad news is that Germany is progressing with discussions on implementing FATCA. The good news is point 2) above: “The U.S. undertakes, in return, the German tax authorities to provide information on interest and dividend income are available, which raises the IRS of U.S. financial institutions.” I don’t believe the German authorities will be so naive to sign any agreement if they aren’t convinced the USA will hold their promise. The question is, how do the USA inted to do that?
I just noticed that the Google transation of point 2) above is hardly understandable, so here’s my own translation:
“In return, the USA commit themselves to providing the German tax authorities information pertaining to interest and dividend income which the IRS collects from US financial institutions.”
@Mike, I share your ambivalence about these accountant but felt I didn’t have much option since I was above the FATCA reporting threshold and would thus have to file an 8938 directly with my 1040. Because it specifically asks whether I had any PFICs or foreign trusts, I concluded that to not have had her fully declare and file the 8621s would have thus become willful. With FATCA coming, I realized I was frozen in the headlights and would thus have no option but to make a full disclosure.
Had I learned of all this, say, in 2007 when I got my UK citizenship, I could have probably made a simpler disclosure and just reported my investment income as ordinary dividends instead of being landed with a substantial tax bill on what were merely phantom gains plus having to pay dividends at the very top income tax rate on the pfic’s even though I am in the 15% bracket normally. PFIC taxation back then was still obscure plus I could have easily relinquished; I will always regret that I had been oblivious and subsequently voted in the 2008 general election, thus making relinquishment impossible.
I thus saw no way around it but to plough through. Her accounting bills will have cost me over a year’s salary but I still trust that she is honest because she felt that mistakes were innocent and that I had a strong enough case for reasonable cause to not need an attorney or to go into OVDI.
I obviously thought my case would look better having gone through a specialized tax preparer such as her firm, plus she can represent me if I’m audited. She warned me that though they normally have three years to audit, that they have up to six years in my case because of the past omissions. However, she believes that they will have started an investigation within two years of the disclosure. So, touch wood, just four months to go!
It has been the most stressful and frightening situation I’ve ever been through and realize I’m still not out of the woods. But as time passes, I feel more hopeful that things will turn out OK. After all, I went to the IRS first and was completely truthful and contrite. It is an overreach but it is the law; I just hope and pray that I can renounce within a few months and smoothly log out next year. I’m just so grateful that it wasn’t even worse.
@notamused
How was the weed? Good stuff? Or just good enough?
@Mark Twain
No comment. 😉
@Mark and @Not Amused, one very sobering realization I’ve had though is that I will have to live a completely clean lifestyle if I renounce because any arrest for drugs (even without charge) could ban me from the visa waiver program. I’d have to jump through many hoops just to get a tourist visa because the U.S. is draconian about crimes of ‘moral turpitude ‘. The law can be an start but will have to play the game to ensure I can continue to visit family. So America will always have a degree of extraterritorial control in that sense but it is what it is.
The language used by the Germans to describe the “reciprocity” obligations of the US is the same word (sich verpflichten) as used to describe the German obligation. I wonder if this means the end of the US’ wishy washy statement about acknowledging the need to set in motion the circumstances that might allow the US to contribute reciprocal information in the future (or whatever it really says). It seems to me that, if that is the case, it represents a rather radical departure from what was previously agreed with other countries.
According to the press release, the US is obligated to provide interest income and dividend income information received by the IRS from US institutions. Maybe I am mistaken, but did we not establish that the IRS does not receive dividend information on NRA accounts? I thought the IRS only received information on interest income of $10 or greater. If that is the case, how does the US obligate itself to provide something it does not receive and of what use would that be to the Germans?
It seems however that either the US is offering a much stronger commitment to reciprocal info or the Germans are desperately trying to make it look that way. I guess we will have to wait and find out.
Welcome to the world of captive subjects, not citizens!
@Edelweiß – Indeed, it seems to be a much stronger promise from the USA than we’ve seen elsewhere. But, I don’t see how the USA plan to do it without changing US legislation and getting US banks to provide that information. As far as I know, US banks currently don’t even necessarily know the nationality of their customers. How would they know who to report to Germany?
“In return, the USA commit themselves to providing the German tax authorities information pertaining to interest and dividend income which the IRS collects from US financial institutions.”
If it’s just “information pertaining to …” that the US will report, it could be like the information pertaining to loss of citizenship that the Treasury Department now reports — very little. 🙂
@notamused
I would be curious to know what the conditions to signing the agreement are (the press release suggests both sides have work to do though that could just be feel good stuff). I wonder if the initialed agreement contains an outright commitment on the part of the US to provide the data but that the agreement can’t and won’t be signed until the US can deliver on this by passing the required legislation. That would make the previous signers of FATCA “Partner” Country “reciprocal” agreements look monumentally stupid.