Published On: Mon, Jul 7th, 2014

IRS’s new overseas tax-collection rules took effect July 1st, 2014

Share This
Tags

If you’re an American, July 4 likely holds some significance for you, even if that’s only getting the day off from work, having a beer, and watching some fireworks. But if you’re an American living overseas, July 1 may come to hold an even greater significance — the day the Internal Revenue Service’s new overseas tax-collection rules took effect.

The Foreign Account Tax Compliance Act, or FATCA, became law in 2010. It requires financial institutions worldwide to report holdings of “U.S. persons” worth more than $50,000 to the IRS.

Those institutions the IRS deems non-compliant could face a withholding tax of up to 30 percent. The law was designed to go after scofflaws that hide money in overseas accounts, and the IRS expects to collect $7.6 billion over the next decade because of it.

These foreign firms have the option of reporting taxable U.S. income directly to the IRS, or via their own tax collection agencies, which will then pass the information along. By this standard, FATCA seems to be doing what it was intended to do: More than 77,000 individual institutions and 80 countries have agreements in place. But by other standards, the law is having effects no one — even the IRS — intended or wanted.

Overseas wealth managers are reportedly dropping American clients, expats are being denied basic banking services, and foreign companies are reportedly less willing to employ Americans — all out of fear of not complying properly with the complex new tax regulations, and the cost of tracking and monitoring FATCA-liable accounts. The number of expats renouncing their U.S. citizenship is also up substantially in the time since FACTA was announced.

IRS Crackdown on Offshore Tax Cheats Comes with a Price

IRS Crackdown on Offshore Tax Cheats Comes with a Price

Part of the panic is due to basic confusion surrounding the law itself: It’s not clear who does and who doesn’t count as an American for tax collection purposes. American citizens certainly count, but so may green card holders and others with ties to the U.S. that are vaguely spelled out in the code. Hence the aforementioned phrase, “U.S. persons.”

Everyone’s a Critic

The U.S. already has a voluntary offshore tax compliance system: The Report of Foreign Bank and Financial Accounts, or FBAR. Like FATCA, it’s also unleashed its share of unintended consequences, and has been criticized even from within the IRS itself. In her 2013 annual report to Congress, Nina Olson, the agency’s Taxpayer Advocate, wrote that while FBAR was “designed for ‘bad actors,’ these programs burdened ‘benign actors’ who inadvertently violated the rules.”

There are similar fears for FATCA moving forward. As Olson put it: “Questions remain … whether the enforcement benefits of FATCA justify the compliance burdens and economic hardships it imposes, and whether the due process rights of taxpayers will be preserved in the process.”

In its defense, the IRS has listened to its critics, at least to an extent, by easing some rules for overseas taxpayers in the voluntary tax compliance code. And the rollout of FATCA itself had been delayed to give foreign financial firms more time to figure out what they need to do to properly comply.

The IRS has a tough job, and no one is ever likely to love the revenue collection agency, but it hasn’t made life any easier on itself over the last few years. Continuing to listen to its critics would help. So would not losing anymore emails. FATCA may enable the government to collect more revenue, but it likely won’t do much to change the IRS’s reputation for bureaucratic red tape.

 

http://finance.yahoo.com/news/

Mexico Travel Care

footer-john-2


Comments

comments

Displaying 1 Comments
Have Your Say
  1. Dipak says:

    Question: Will the IRS red-flag or Audit me or the FATCA or FBAR investigate me.
    My friend Mr.A is a US citizen, originally from Dubai. His rich friend in Dubai Mr.B, is giving him AED700,000 equal to USD190,000 when Mr.A next visits Dubai in 2015. Mr.B request is Mr.A keeps the givers, Mr.B’s name secret.

    Mr.A would like to keep this amount in the Dubai Bank, until he figures out what to do with it. Mr.A will file the interest income in his 1040 IRS Taxes and also report the account in the FBAR filing. His concern is will the IRS, FBAR or any other regulatory agency question him as to how he suddenly got this large amount and foreign bank account in 2015. If so, then he is not interested in the bank account. And will consider other options. Like buying a small condo in or around Dubai. Or investing in Bitcoins. Or traveling and living a life of luxury till the money runs out etc.
    Mr.A is uneducated and files his 1040 every year. His reportable income every year is around USD20,000.
    Your views and feedback will be highly appreciated.

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>