Tag Archive | "taxregulations"

Never Say Never

Never Say Never because we never know what the future holds.

Yesterday I took a walk in or Blue Ridge woods thinking about the twists and turns that life send our way.  There had been a huge storm and the creek was raging so there was a lot of water under the bridge.


Bridge at our North Carolina farm.

That’s sort of like life… so many events… problems and joys of the past are now… water under the bridge.

This led me to an important thought generated by letters from so many readers.  The thought is “Don’t let water under the bridge leave you all wet or high and dry”.

The thought comes because many readers share with me their disappointment in the evolution of their nations. Americans… Canadians… British and Ecuadorians wrote telling me how fed up they are and they are leaving… finished… done.

If you decide to leave your homeland… there is little wisdom in burning bridges… especially when not necessary.   If you emigrate… do so in a way so you can return.

This requires a bit of extra effort.  Do it!  Otherwise the costs can be high.


Waterfall on our farm.

When Merri and I left Naples, Florida and shifted our living to Ecuador and North Carolina… we expected to live that way for the rest of our lives… traveling north and south.

Then came a sick mom…new grandkids in England, Florida  and Oregon and a real estate crash that created enormous value in the USA.  Suddenly we found ourselves flying East and West and right now Ecuador does not fit into the family at this time.

Many readers leave their homelands expecting to never return.  Never say never.  Take Americans and their tax man as an example to see why.

Excerpts from an April 2012 article “Growing Numbers of Tax Refugees Exit USA Permanently” by Mark Nestmann explains why.  That article says:  Numerous additional obligations come with U.S. citizenship or permanent resident status. For instance, you must make detailed disclosures of your non-U.S. investments annually to the IRS and U.S. Treasury.

You face additional tax pitfalls with reference to your non-U.S. investments and business activities. U.S. tax provisions for interests in non-U.S.-registered mutual funds, controlling interests in non-U.S. corporations, and interests in non-U.S. trusts are but three examples of the many “tax landmines” that U.S. taxpayers may inadvertently detonate.

However, a much larger number of non-resident U.S. citizens and green card holders aren’t even aware of their ongoing obligation to comply with U.S. tax and reporting requirements. An estimated seven million U.S. citizens live outside the United States, yet only a few hundred thousand of them file U.S. tax returns.

Starting around 2008, the IRS began to enforce these rules much more vigorously, especially with respect to non-resident U.S. citizens. For instance, in Panama, armed IRS agents now roam the countryside looking for non-compliant U.S. taxpayers living or doing business there. In Austria, I recently learned of the IRS calling a U.S. citizen’s unregistered phone number to remind her of her tax and reporting obligations.

Here’s how it worked in one case related to me. A Mexican citizen, now well past retirement age, grew up in a tiny town in Mexico near the U.S. border. At the time of his birth, the town lacked any medical facilities, so when his mother went into labor, his parents drove to the nearest hospital, which happened to be just inside the U.S. border.

Fast forward 70 or so years, and this gentleman was longing for some relief from hot Mexican summers. So, he did what countless other wealthy Mexicans have done—he purchased a condo in San Diego. At closing, he encountered a strange anomaly. The closing documents listed him as a U.S. citizen. He tried to correct what he believed to be a mistake, but the broker assured him the documents were correct. Since he was born in the United States, he was indeed a U.S. citizen.

Our hero thought that was the end of it, but when he arrived in San Diego for the summer, he received a notice from the Internal Revenue Service. The notice informed him that he was obligated to file U.S. tax returns. And there was no record of him filing a U.S. tax return for the preceding three years. The notice invited him to respond immediately.

A few days later, he drove over to the local IRS office to see if he could resolve the situation. After a brief conversation, he was shocked to learn that the IRS had already commenced an examination. The agent started using terms such as “willful failure to file,” “criminal penalties,” and “jeopardy assessment.”

At this point, our hero hired a criminal tax defense attorney. He spent about $100,000 in legal fees, and eventually received a notice from the IRS informing him that he wouldn’t face criminal penalties. Still, he had to pay 25% of the peak value of his unreported non-U.S. accounts for the period 2003-2010. Unfortunately for him, the value of these accounts fell about 35% in the global economic turmoil of 2008-2009. The accounts that were once worth $2 million are now worth about $1.3 million. Nonetheless, he paid a $500,000 penalty to avoid criminal prosecution.

There are few constants in life… but one we can be sure of is change.  Sometimes we hate the change we see and choose to escape it rather than change with it.

This is a time honored and often wise solution to problems created by change.   Just don’t make the mistake of thinking that with a move… change will stop.  Be sure wherever you live to maintain legal status back home.  No sense in being up a creek like this without a paddle.


Little Horse Creek on our farm.


We will have two experts on pensions and filing taxes overseas at our October 5-6-7, 2012  Super Thinking + International Investing and Business Seminar.


European Bank Boost

There is a European bank boost coming up next January that adds one more positive layer to my gamble on the Euro financial sector.


Leslie Share International Business & Tax attorney.

One of the tax and international legal advisers I have used for at least 30 years is Leslie Share in Miami.  Leslie sent this note to me after we published an article about the 8938 tax filing form.

Hi Gary—if the 8938 isn’t the straw that breaks the camel’s back—maybe the attached as discussed below will be it. Some think it will cause many foreign investors to empty their US accounts and move their money elsewhere—not good for our economy!  Best regards.  Les Share

Leslie sent this memorandum from the 4/18/12 Daily Tax Report (BNA)

Information Reporting

IRS Unveils Final Rules Requiring Reporting Of Bank Interest Paid to Nonresident Aliens

BNA Snapshot

Key Development: IRS unveils final rules (T.D. 9584) and a revenue procedure (Rev. Proc. 2012-24) requiring domestic banks to report deposit interest paid to nonresident aliens.

Potential Impact: The rules apply to the U.S. accounts of nonresident aliens from countries with which the United States has an information exchange agreement.

Next Steps: The guidance is effective April 19, 2012, but applies to payments of interest made on or after Jan. 1, 2013.Banks will have to report deposit interest paid to nonresident aliens as a way to help the United States combat tax evasion through its ability to reciprocate tax information shared by other countries, the Internal Revenue Service said in final rules (T.D. 9584) unveiled April 17.

For the first time, the agency specifically said the information would help the U.S. government in reciprocating information gleaned on U.S. accounts in foreign banks under the Foreign Account Tax Compliance Act (FATCA).

IRS slightly tailored the controversial rules (REG-146097-09) it proposed in January 2011 (5 DTR G-2, 1/7/11) by requiring the reporting only for nonresident aliens from countries with formal exchange information agreements with the United States.

The requirements apply only for pacts in which the United States has agreed to provide, as well as receive, information and under which the competent authority is the secretary of the Treasury or his delegate.

IRS Stresses Safeguards

IRS stressed that a variety of safeguards for the information need to be in place in the foreign jurisdiction before it will be exchanged.

The agency also issued Revenue Procedure 2012-24, with a list of 80 countries and territories where the reporting requirements would apply for nonresident aliens with accounts in the United States.

In the preamble to the final rules, IRS said, “The reporting required by these regulations is essential to the U.S. government’s efforts to combat offshore tax evasion for several reasons.”
First, the agency said, it allows IRS to exchange information with other jurisdictions on tax enforcement—information that the United States needs to identify and stop evasion. The effectiveness of U.S. agreements to get such information, such as treaties and other pacts, depends on the ability of the United States to reciprocate, IRS said.

FATCA Implementation Key Focus

Specifically, IRS said, the government needs to be able to reciprocate information it receives under FATCA, which requires foreign banks to report U.S.-owned accounts to U.S. tax authorities or face, in some cases, a 30 percent withholding tax.

In February, the U.S. government unveiled not only nearly 400 pages of proposed rules (REG-121647-10) under FATCA (26 DTR GG-1, 2/9/12), but a joint statement by the United States and five other countries—France, Germany, Italy, Spain, and the United Kingdom—outlining a framework for government-to-government information sharing agreements under the law (26 DTR GG-3, 2/9/12).

In the April 17 final rules on nonresident alien interest reporting, IRS said that in many cases, the implementation of FATCA will require the cooperation of foreign governments to overcome legal impediments to reporting by their resident financial institutions.

“These regulations will facilitate intergovernmental cooperation on FATCA implementation by better enabling the IRS, in appropriate circumstances, to reciprocate by exchanging information with foreign governments for tax administration purposes,” IRS said in the preamble to the final rules.

IRS Addresses Criticisms of Proposed Rules

The proposed rules on nonresident alien interest reporting touched off a fire storm of criticism from banks who said nonresidents would take their accounts elsewhere, and from lawmakers in jurisdictions such as Florida and Texas with high concentrations of foreign-held accounts.

In the preamble to the final rules, IRS said concerns raised in comments “are addressed by existing legal limitations and administrative safeguards governing tax information exchange,” including strict confidentiality rules under tax code Section 6103.

The agency stressed that, “consistent with established international standards, all of the information exchange agreements to which the United States is a party require that the information exchanged under the agreement be treated and protected as secret by the foreign government.”

IRS said it made the decision to tailor the rules to jurisdictions with information exchange agreements as a result of the concerns expressed by commenters.

You can reach Leslie  Share at las@pnrlaw.com

Here is the potential bonus for European banks.   The US has been one of the greatest tax havens in the world for non Americans. Essentially US bank accounts for non resident non Americans have been private and tax free.   The enforcement of this end of the FATCA regulations means that US banks will have to report interest earnings.   This also means than many aliens may pull their funds from the USA and place them elsewhere.

European banks could benefit from this shift of funds.

I am betting that the euro and Europe will survive and have been speculating by increasing the weighting of my portfolio in the Euro and especially the European financial sector.

This new US tax regulation against non resident aliens may be a European bank boost that helps my portfolio.


Learn more about global investing and business at our October 5-6-7 Super Thinking plus International Investing and Business seminar.