Expanded Disclosure for Offshore Interests Exceeding $50,000
- Any ownership of non-U.S. securities. This appears to represent a crackdown on the use of “bearer shares.”
- Any financial instrument or contract held for investment from a foreign issuer or counter-party. This appears to require the reporting of offshore life insurance or annuity contracts.
- Any interest in any foreign entity. Reporting provisions in current law impose an obligation for U.S. persons who acquire or dispose of a 10% or greater interest in a foreign corporation or partnership to disclose that transaction. However, no disclosure for smaller interests was required until now.
- the filing of more than one FBAR (in some cases)
for each offshore account you hold - disclosure of precious metals certificates and electronic gold accounts
- Precious metals held off shore do not have to be disclosed,
if they are accessed exclusively by yourself - Foreign real estate does not have to be disclosed.
However, income from the property is reportable and taxable.
There are actually three separate reporting requirements now:
1. You must acknowledge foreign accounts with an aggregate value exceeding $10,000 each year on Schedule B of your federal income tax return.2. You must file "Form TD F 90-22.1" with the U.S. Treasury Department each year. This form is also called the "foreign bank account reporting" or "FBAR" form. Information requested on the FBAR includes how many foreign accounts you hold, their maximum value, the name of the financial institution where the accounts are held, the account numbers, etc.
3. If you hold more than $50,000 of assets outside the United States, you must now file IRS form 8938 to comply with FATCA.
Failure to comply with any of these requirements, could result in a negligence penalty of US$10,000. If you "willfully" fail to file the FBAR, you could face a fine up to US$250,000, imprisonment up to five years, or both. Penalties are doubled if you violate any other U.S. law.
Is your Foreign Held Asset Really a Foreign Account?
Unfortunately, it's not always easy to figure out whether you need to file the FBAR form or not. If you have what most of us think of as an "account" at a foreign bank or brokerage, it's clear you must file the form. But even using the published guidance from the IRS, it's less clear whether you must disclose details of other offshore relationships.Obviously, if you can legally and unambiguously avoid reporting your offshore account or accounts, you should protect your financial privacy by not reporting them. But in recent months, Congress, the Treasury Department and the IRS have moved to expand the definition of what constitutes a "reportable" foreign account.
It's not easy to keepe up with the many changes to the reporting requirements, so you may want to consult with a professional, in order to assure your compliance:
-
For example, recent changes now require:
The annual deadline for filing the "FBAR" form is June 30
However, unlike with tax returns, it is not enough to simply have your filing post-marked on that date, the form must acutally be recived by that date.A filing is required for any "U.S. person" who holds foreign assets with an aggregate value of $10,000 or more.
If you have a financial interest in, or signature or other authority over foreign bank, securities or “other” financial accounts with an aggregate value exceeding $10,000, you must file the FBAR. That’s true even if the account contains only precious metals or other non-cash assets, or generates no income.
The tax penalties for failing to file FBAR forms are draconian. You could end up paying a $10,000 fine per unreported account for each year you neglect to file the FBAR. Far worse, if you "willfully" fail to file the form, you face a fine up to $500,000, five years imprisonment or both.
In addition, if you own more than 50% of the shares of a corporation (by value, U.S. or foreign) with a foreign account, the corporation must file a FBAR. You must also file a separate FBAR in your own name acknowledging the same account.
Similar rules apply to partnerships. Even a single-member LLC, taxed as a “disregarded entity,” is a “U.S. person” for FBAR purposes. Reporting rules apply to foreign accounts held by trusts as well.
All and all you may be required to make four or more separate disclosures of the same investment or account.
For instance, if you own a foreign account through a foreign entity such as a Nevis LLC, you'll need to:
1. File the FBAR for yourself.
2. File the FBAR for the LLC.
3. Check “yes” on Schedule B.
4. And possibly disclose your interest in the LLC according to the new HIRE Act requirements.
Plus, you must file a separate annual disclosure form for the LLC (the specific form depends on how you've elected for it to be taxed).
Offshore Investment Advantages
Despite the ongoing efforts of the US Government to do away with any tax advantages of investing offshore, there still remain substantial non-tax advantages by investing outside the United States. These advantages include:- Access to investment and business opportunities not available in the United States.
- Protection from the falling U.S. dollar.
- Reduced portfolio risk.
- Investment continuity in the event of disruptions in U.S. markets.
- Protection from professional liability and other claims
- Increased privacy.
- The ability to safegaurd you and your family from the ever increasing threats of totalitarian governments.
Today, more than ever before, the country you chose to bank in is critical. Laws change constantly. These days, it is probably prudent to bank in jurisdictions that are not considered to be traditional tax havens. There is a big push to go after the recognized tax havens by the Organization for Economic Co-Operation and Development (OECD) and force them to enter into tax information exchange agreements (TIEA) for the sharing of information on bank accounts for purposes of suspicion of tax evasion with no serious proof or probable cause required. tax.
This appears to be impacting: Switzerland (already signed treaties this year), Cayman Islands, Cyprus, Liechtenstein, Luxembourg, Austria, Guernsey, Isle of Mann, Jersey, Singapore, Monaco, British Virgin Islands, Bermuda, Cook Islands and others. The USA signed the Brussels Agreement with the EU countries allowing the USA to access any bank account in the EU in all 27 countries with no court oversight, no need to show probable cause and in general no accountability at all. For all practicable purposes, this rules out all 27 EU countries as possible asset protections jurisdictions. There are however, at least 40 countries who have not cooperated with the OECD and have NOT signed any TIEA.
The OECD intends to eventually have all 82 nations sign a TIEA with the other nations or else impose sanctions. Sanctions can include cancellation of international treaties, taxes of various sorts imposed by the other nations on goods and money transfers, and of course interfering with their correspondent bank relationship impeding with the ability of banks in a certain targeted country to send and receive wire transfers, checks and credit cards. As the OECD crunch progresses it will likely cause capital flight from the offshore tax havens.
The US government has three lists of countries in which Americans might want to open bank accounts, "black list", "gray list", and "white list". Each of these lists describe the level of service that are open to Americans.
- Being "Black-Listed" means that the banks in the USA cannot do business with this country. In essence, the U.S. banks cannot send money to those banks, or receive money from them. This was one of the tactics in the embargo against Panamá during the final years of Noriega. The people of Panamá were not able to do any business at all, and were starved to the point that some of them were willing to do almost anything in order to end the embargo.
- "Gray list" means that American banks can do business, but they are discouraged from doing so. An example of this is that it is very easy to send money to Panamá and receive money from Panama, but some levels of service, such as PayPal deposits to a Panamanian account are discouraged.
- Being on the "white list" brings with it the easiest of bank relationships. It might even make it possible to open a bank account in Panamá for a USA business!
- The OECD requires a country to have signed 12 TIEA's in order to be "white listed"
Please note most of these agreements are not yet ratified and many do not involve the automatic exchange of information like the EU Savings Directive. Currently, for a nations without a TIEA, a country must use the Mutual Legal Assistance Treaty (MLAT), where ones exist, to obtain information which is an extremely onerous and expensive process.
|