Chile Forum

The IRS is changing from the relatively "nice" bureaucracy that we've experienced for the past 15 years. More new hires, green agents with a mission, and a government desperate for revenue spells trouble ahead. I expect the new, improved version will resemble the IRS of the good old days where they seized assets first and then asked questions later. Anyone who ran a business in the '70s or early '80s knows what I mean.

The proud nail gets hammered.

I will clear up a few misconceptions about TD F 0--22.1:

(1) Report of Foreign Bank and Financial Accounts (FBAR): this is a report that "United States persons" who have a "financial interest" in or "signature authority" over a "foreign financial account" must file every year. The form on which you file that report is called TD F 90-22.1. All of the terms in quotes are defined terms so you need to read the regulations to find out if you fall into those categories.

(2) The FBAR is not a creation of the IRS. It is a regulation of the Treasury Department, which has authorized the IRS to administer it. The origins of the FBAR: it is a by-product of the Bank Secrecy Act of 1970 (Nixon Administration). The US government was afraid that US persons were hiding the proceeds of their criminal activities (drug dealing, gun smuggling, etc.) in banks in tax havens. More recently, the focus has been on terrorist activities. In the 1970s, $10,000 was quite a bit more money than it is today. So in those days, average Americans living abroad did not really have to worry. Today, nearly everyone is affected by this reporting requirement.

To find out the nitty gritty details of this regulation and whether or not you need to file, you must absolutely read the IRS regulations and frequently asked questions. They are extensive and very helpful. Just Google FBAR or go to:
http://www.irs.gov/businesses/small/article/0,,id=210244,00.html

I will add another important point regarding who must file the FBAR: if your spouse, child, or relative has a foreign bank account and you have a power of attorney (you know, just in case the person dies), you may need to file if you are a "United States person". There are so many people who have powers of attorney over large bank accounts of their spouses and elderly parents and they never file. The IRS is on its second amnesty program. They had an FBAR amnesty program two years ago that was a smashing success. A lot of people with bank accounts in the Carribean islands and in Switzerland came forward and paid huge penalties. So they started another amnesty program this year except the penalties are higher since the current crop of amnesty applicants should really have come forward two years ago.

The sad thing is that some of the people who have not been filing the FBAR are on the hook for huge penalties but their bank accounts are quite small (less than $100K) so they don't bother. The penalty is too high.

Here is a piece from today’s paper a follow-up to the piece I posted the other day. It is correct in that the privacy laws in Canada will never release the information the IRS requests and it appears the European Banks are even tighter with information. Also it points out citizenship is not collected when you open a Canadian Bank account, so asking the banks to disclose accounts in Canada that are held by US citizens is a mote point. It’s the dual citizenship kids (of US citizens) that are by birth US citizens and don’t comply because they don’t know that is a bit of a joke. I know why I don’t deal with anything in the US anymore.

Ordinary citizens or big banks the IRS threatens them all


By Don Cayo, Vancouver Sun August 20, 2011
It's not just at kitchen tables that you'll hear worried talk about a new IRS push to penalize thousands of American citizens who live in Canada.
Some of the same concerns I'm hearing in emails from frightened British Columbians, many of whom have dual citizenship and have lived here all their adult lives, are being echoed - perhaps in more measured tones - at polished boardroom tables of some of the world's wealthiest institutions.
Since wealth so often equates with power, I suppose this means there's a chance at least some aspects of this mess will be fixed before the consequences worsen.
The mess, as I reported in Friday's Vancouver Sun, stems from an IRS campaign against tax fraud. But it turns out it may also mean huge penalties for thousands - maybe hundreds of thousands - who owe no tax but have failed to file some required forms.
The root of the problem is that many non-resident American citizens don't know that, regardless of where they live, they must file annual tax returns to the IRS if their income from any source exceeds a few thousand dollars a year. That's true even if - as is the case for most wage-earners and pensioners - they don't owe any money to the U.S. government. And it can apply even to Canadian-raised children of American parents, even if they've never had any financial dealings in the U.S.
As well - and it seems even fewer non-resident Americans know this - they have to annually disclose all their financial accounts outside the U.S. if the aggregate value exceeds $10,000. Since not only bank accounts but also "trusts" like RRSPs, RESPs and TFSAs are all included, many citizens' holdings are beyond the threshold. The potential penalty for "non-wilfully" failing to disclose - that is, through error rather than attempt to defraud - is $10,000 per account per year.
An Offshore Voluntary Disclosure Initiative, which I wrote about in Thursday's paper, could lessen those penalties. But the deadline is Aug. 31, and the complex requirements likely mean some people can't comply in time to meet it.
These realities are making some I've talked to sick with worry, and they're related to the issue that upsets the bankers. Because the U.S. has another new law that, effective in 2013, will require financial institutions around the world to disclose the citizenship of any American customers if they do business in the U.S.
In Canada's case, banks generally don't have that information. And if they can get it - no simple trick, especially if they must include past accounts as well as current ones - Canadian privacy laws sorely limit what they can do with it.
And if they can't get it or won't disclose it, the U.S. law calls for American authorities to withhold 30 per cent of any payments going back across the border and 30 per cent of the proceeds of the sale of any American assets.
Privacy laws are even more strict in much of Europe, and the challenge of collecting the information, though it varies among countries, is universally seen as onerous.
So both the Canadian Bankers Association and the International Bankers Association are exerting their influence to get these requirements modified or scrapped.
Allenna Leonard, the Toronto-based chair of Democrats Abroad Canada, has also been involved in both these issues. And she predicts the bankers will win their case.
"There are enough people aligned, and it's quite clear that it will harm American interests abroad," she said. "There have already been cases where international banks have declined new business from Americans because of this. . And it could mean people will simply avoid doing business with the United States."
On the non-filing/disclosure issue, however, Leonard isn't sure the rules will be changed in time to save a lot of people from a lot of grief. But she hopes to see both an increase in the threshold for disclosure from $10,000 to $250,000 and an extension of the deadline for voluntary disclosure.
Also hanging is the question of how the IRS might collect any penalties it assesses against residents of Canada. Tax treaties require the CRA to collect some debt for the IRS, but not all. A CRA spokesman said specific questions on this issue have been referred to the finance ministry for assessment.
No one doubts the U.S. laws were intended to crack down on fraud and tax evasion, and in that I - and everybody I've talked to - wish them well.
"But they didn't think it though," Leonard said. "They don't understand how many minnows they'll catch with their whale net."
Worse, they'll create an unmanageable amount of unproductive work at a time when the IRS already lacks the manpower to go after people it has reason to believe are cheating the system. "All of a sudden there'll be hundreds of thousands more returns flooding in from people who don't owe anything," she said. "Who'll go through all this?"


Read more: http://www.vancouversun.com/Ordinary+ci ... z1VawiPFGs

nwdiver wrote:It is correct in that the privacy laws in Canada will never release the information the IRS requests and it appears the European Banks are even tighter with information. Also it points out citizenship is not collected when you open a Canadian Bank account, so asking the banks to disclose accounts in Canada that are held by US citizens is a mote point.

The U.S. government recruited a spy to rat out account holders at UBS, a Swiss bank legendary for not sharing records. The new cyber-warfare initiatives are spending billions to create "tools" that will be used for snooping. A foreign bank may have an official policy regarding disclosures, whether or not that policy is respected by other governments is another story.

GJJIM wrote:

nwdiver wrote:It is correct in that the privacy laws in Canada will never release the information the IRS requests and it appears the European Banks are even tighter with information. Also it points out citizenship is not collected when you open a Canadian Bank account, so asking the banks to disclose accounts in Canada that are held by US citizens is a mote point.

The U.S. government recruited a spy to rat out account holders at UBS, a Swiss bank legendary for not sharing records. The new cyber-warfare initiatives are spending billions to create "tools" that will be used for snooping. A foreign bank may have an official policy regarding disclosures, whether or not that policy is respected by other governments is another story.

Hey if your name is John Smith and you have a Canadian bank account it can be tied to a P.O. box which you need no ID to get. I have a friend with no fixed address, he lives on a boat worth 2M, he has bank accounts etc. Without any problems, all tied to his PO box, if he were a US citizen, how would the US find out anything? Sure cyber snooping but try to make that stand up in any Western Court system. Oh we found him by cracking his bank’s computer system. With that in hand the US couldn’t even extradite him to the US from most places, especially those in Europe where you don’t have to file an income tax return when working out of the country as there is no law broken. The UBS information netted Canada several names none of which they could touch because of where the info came from.

The USA is all alone in its quest to tie its citizens to the motherland.