anamericaninbangkok wrote:Rock wrote:The US-Swiss banking row has been going on since around 2009. It got started when a disgruntled former UBS private banking employee went to the US Feds and started talking (IRS whistle blower program offers very attractive rewards). Since then, UBS, CS, and other foreign banks have been prosecuted criminally and/or civilly by US Justice Department. European countries have followed suit by attacking Swiss banks and demanding names of all their respective nationals who hold Swiss accounts. Thousands of client names (guilty until proven innocent) have been handed over to government revenue collection agencies and 3 very expensive (in terms of civil penalties) voluntary disclosure programs netted another 30 thousand or so client names. Banking secrecy is dying quickly. The only haven I know of in Europe which so far seems to have escaped scrutiny or any press is ... (not going to even write the name here).
FATCA what the US is doing to bring foreign financial institutions and offshore financial branches into the US tax system. Any US financial institution issues documentation for it's clients which can be matched to returns. When the taxpayer omits or understates interest income, dividends, or capital gains from such accounts, they easily get discovered during the matching process. IRS wants similar documentation from foreign financial institutions on all clients who are US persons and that is part of what FATCA is about. US government is in process of negotiating with a slew of countries on this so that it can get fully implemented in 2 or 3 more years. I'm hoping it somehow gets watered down or nixed.
But FATCA is also about new reporting requirements for US persons abroad. Before, we simply sent FBARs to Treasury each year with info on all foreign accounts we hold (max balance, account name and location, etc.). Now we have to also provide this info directly to IRS (duplicate effort) by reporting this info on our tax returns and also spelling out how much interest income, dividends, and capital gains/losses were generated by these accounts. For now, the IRS will likely compare assets to revenues and wherever something looks odd, flag it for an audit. When the documents start coming through (if they ever do), matching programs will fully close the gap.
Even before FATCA, US persons were required to report all their investment gains and incomes on their tax forms. But they weren't separated out the way they are now nor was asset reporting required (except separately to Treasury in Detroit on FBARs which normally never get looked at by IRS). So it was easy to omit and not get discovered.
Offshore account holders have become the new 'bad guy'. Understand, failing to report accounts on FBARs and/or on new forms required by FATCA can lead to confiscatory type civil penalties and even jail time. A lot of former UBS and CS clients found this out the hard way. Some former millionaires were totally bankrupted and ruined by this witch hunt after the smoke cleared. Many innocents (such as Canadians who happened to have US citizenship through birth or other accident) who were ignorant of reporting requirements in the past opted into one of the voluntary disclosure programs to avoid possibility of criminal prosecution. Some of those ended up losing most or all of their lifetime savings as the programs fined them 20-27.5% of max balance in each account going back to 2003 plus a 20% penalty plus interest on all non-reported incomes from these accounts over the years. If you lost most of money after 2009 crash or used the account for temporary transfer of large sum to buy a house, the maximum balance is still the one used to calculate the penalty, not some sort of long term averaging program which would be a lot more reasonable.
BTW, the US$90 K plus exemption and generous housing cost exclusion only offsets earned income, not investment income. So even if you make just US$50,000 overseas as a US expat, you will likely pay significant tax to US government if that income is derived from offshore accounts and investments.
And these earned income exemptions and exclusions are not about avoiding double taxation. Even if you are way out of the ballpark (say you earned US$500,000 last year), the IRS will give you full credit for whatever tax you pay to qualified foreign governments. So you won't be taxed twice on it. However, if the effective US tax rate is higher than what you host government collected from you, you will need to pay the difference (after allowing for the exemptions and exclusions) to the US government. If US government would have taxed you 45% on amount above say US$110 K (exemption and exclusion) and you already paid host government 40% on this, you will just need to pay roughly 5% to US government.
I guess this rules me out. I'm not earning any investment income. What I do earn comes from my Thai wife and is never put into a bank account as it generally goes back into the land/rubber trees. The most I've earned while working abroad is about $80K. If I have to I can live off cash and never use bank accounts. This is highly unlikely but...like I said, f**k EM. I'm not going to earn money abroad and then pay it to the US. What do I get from the US now? A passport? Every time, I go to the embassy it costs $50-$75 MINIMUM. You can't even get pages added without paying and I think there's now a three addition limit. Then you have to get a new passport. My last passport has 6 additions — I paid for none of them. I don't mind paying but then don't expect me to pay taxes. That exemption on earned income should remain in place and I don't feel guilty at all about not paying a dime in taxes in nearly two decades.
1. FBARs are just for financial accounts. But the new Form 8938, required under FATCA, requires all the following to be reported along with your US income tax return:
A. Financial accounts maintained by a foreign financial institution. Examples of financial accounts include:
- Savings, deposit, checking, and brokerage accounts held with a bank or broker-dealer.
B. And, to the extent held for investment and not held in a financial account, you must report stock or securities issued by someone who is not a U.S. person, any other interest in a foreign entity, and any financial instrument or contract held for investment with an issuer or counterparty that is not a U.S. person. Examples of these assets that must be reported if not held in an account include:
- Stock or securities issued by a foreign corporation;
- A note, bond or debenture issued by a foreign person;
- An interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap or similar agreement with a foreign counterparty;
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterparty or issuer;
- A partnership interest in a foreign partnership;
- An interest in a foreign retirement plan or deferred compensation plan;
- An interest in a foreign estate;
- Any interest in a foreign-issued insurance contract or annuity with a cash-surrender value.
2. If you hold an interest in that land/rubber tree plantation, and any gains or incomes are generated in a given year, that's taxable as far as IRS is concerned. But if its all held in your wife's name, then you should be clear of reporting requirements.
3. You've been in Thailand for a long time. Are you eligible for naturalization there? If so, why not go that route. Here in Taiwan I'm eligible and could naturalize and get a passport in just a couple months. But it would require me to renounce my US citizenship as part of process and I'm not ready to do that. My family has land assets in USA which go back generations. But you sound like someone who would have no problem renouncing your US citizenship. Do you have near native fluency in Central Thai which might be one of the requirements?
