Merrily Farm now has a continual stream of interesting guests and Merri and I spent this weekend here with one of the world's most astute tax lawyers. At lunch we moved our picnic table overlooking the trout filled creek into the shade and listened to him explain why the current U.S. reporting initiative is only the beginning of worse things to come. A hummingbird flitting overhead and the gentle murmur of the creek were comforting, but his words were not.
"There are five problems we have that will lead to even further erosion of bank privacy," he said. "First, the holocaust incident in Switzerland has shown bankers everywhere that if the U.S. and western world government come after them or even after an entire bank system (such as Switzerland), that they must concede.
Second, the western governments are leaning on finance center governments and they in turn are leaning on the auditing firms to make sure that they are strict in observing whether a bank has U.S. clients or not. One Swiss banker I deal with said that Swiss bank auditors now act like they are agents of the IRS!
Third, all the banks are so afraid that they will make a mistake and invoke the wrath of the U.S. that they are all depending on the big global accounting firms which also act like agents for the IRS. They take the most conservative view as to how the rules must be interpreted.
Fourth, all banks world wide must comply with the new W9 reporting law because this deals with U.S. source income which is paid by paying agents from the U.S. If an international bank does not comply, the U.S. paying agent will withhold a alternative 31% tax.
Fifth, the U.S. Treasury is becoming so organized that they will use this data more and more. For example they will probably begin looking at all really large returns (say for instance W9s that indicate a person has $20 million held in foreign banks) and investigate to see if tax reported matches that amount. Then they take lower amounts and do this again. They'll look at wire transfers as well to see if they match up with the W9s. Then they'll just draw the loop tighter and tighter.
Here is the end result. All large reputable banks will comply with the regulations. They will take three basic approaches. Some banks will ask their U.S. customers to close their accounts. This has already happened with some large banks. They just don't want the trouble.
More often the banks will ask U.S. clients to give permission to provide information to the U.S. paying agent on any U.S. source funds they have.
Third if one does not want top provide such data, the banks will not hold U.S. income source investments for U.S. taxpayers.
Make no mistake this is something i have been harping on for years. There has been a continual erosion of bank privacy that began in the 1970s. This is just one more step. You should not attempt to rely on bank privacy to avoid paying tax. This game is over. If you continue to hide money, you are at risk of getting caught in the years ahead as similar regulations are passed. Do not feel protected just because you are not a U.S. resident either. Do not think for a moment that the British, German authorities etc. are not watching this. They will try to copy.
If you have money abroad that you have not declared, get an attorney now and get his assistance in resolving this issue.
If you continue to try hiding money, several events will take place. First as bigger banks become increasingly cautious, you will run the risk of having to close your accounts at reputable banks. This could be disastrous because you will find it difficult to place the funds elsewhere and may be forced to use banks of lower quality and higher risk. Second, you will lose the ability to invest in U.S. source income type investments. Third you run the risk of getting caught in even worse future legislation where your privacy is truly ended before you have a chance to act.
This is a serious issue as this is the first time I have ever heard International bankers voice concern their concern that some of their clients are not paying tax on income or profits earned in overseas accounts. I will not be surprised to see some overseas banks demanding that their clients submit tax returns to prove that they are not using accounts to avoid tax.
Does all this sound negative? Do not despair! This is a game of thrust and counter thrust
There is still on way to legally maintain privacy which is through overseas insurance policies. I am preparing a lengthy report which identifies at least five excellent companies to use. This will be first reviewed at our upcoming October 13-15 course and also sent free to international eClub members. If you are not attending the course and are not an eClub member, you can get this report downloaded for US$9.95. For order details please email email@example.com.
One of the delegates at the October 13-15 course is an international banker with experience in the Caymans, Bahamas, South America as well as Europe and he will be of enormous help in this session.
Also look for my next message at the philosophy forum on abundance. Until then, good investing!
Here are the links to the references we've used in this article: