Obama Watch: FATCA on Tour

By Donald Grove, Contributing Editor, The Casey Report 

Implementation of the infamous Foreign Account Tax Compliance Act (FATCA) got underway in earnest on July 1, 2014. A cacophony of protests and warnings could be heard as that date approached, and it has only grown louder as more and more people realize how startlingly draconian and wrongheaded this legislation is.

Even if one believes that the real objective behind FATCA is, as professed, to snag wealthy overseas tax cheats, it isn’t hard to see that the collateral damage far exceeds any conceivable benefit. Any additional tax revenue will be dwarfed by compliance costs, lost foreign investment, overseas financial institutions refusing to do business with Americans, and the alarming specter of more and more Americans renouncing their citizenship.

Road Trip

Jim Bopp, a serially successful Supreme Court litigator, and Mike Lee, Republican Senator from Utah, have taken their battle against FATCA on the road. Mike Lee is a member of the Senate Judiciary Committee who stepped onto the national stage with his rebuttal to President Obama’s State of the Union address in January this year. Senator Lee will explain how FATCA can be attacked legislatively.

As I write, they are in Paris addressing attendees of an event sponsored by the Association of Americans Resident Overseas (AARO) and Republicans Overseas. Additional stops are planned for London, Frankfort, Geneva, and Luxembourg. The tour may even extend to Asia.

Jim Bopp is preparing to challenge the constitutionality of FATCA in the Supreme Court and will be lining up plaintiffs for that court case during this tour. The AARO told its members that the pair will discuss the court challenge and explain why FATCA is “an invasion of privacy, an overstepping of authority on the part of the Treasury Department, and a tool for ‘cruel and unusual punishment.’” Their tour will build support for FATCA reform among 7.6 million Americans who live and work overseas but mostly do not vote in US elections. Organizers hope to register and get ballots to this huge block of voters—equivalent to the 13th-largest state.

Unwilling Participants

It’s easy to understand why foreign banks are closing Americans’ accounts and refusing to open new ones: FATCA basically turns them into snitches for the IRS. Overseas Americans are treated like tax evaders—guilty until proven innocent. Foreign financial institutions (FFIs) are required to perform “due diligence” on “suspicious” customers, including flagging those who open accounts using foreign passports but are US citizens or permanent residents of the US. Banks that are not sufficiently attentive or fail to report suspicious customers risk being deemed “negligent” by the IRS and may be sanctioned.

The US Treasury Department seems quite proud of the fact that foreign banks are complying with FATCA. That compliance is not willing, however. The banks really have no choice. US correspondent banks in New York have been told not to provide correspondent services to foreign banks that don’t comply with FATCA. To tighten the noose, US banks have also been told not to do business with any foreign banks that assist banks that are not compliant. Thus, a compliant FFI that assists a noncompliant FFI is shunned by US correspondent banks on which it relies to process its own payments.

Closing the Gates

The poor, if they want to slip away from the clutches of the US before becoming wealthy, have a relatively easy time of it. It is not as easy for the wealthy to escape. The IRS imposes a tax on unrealized capital gains of both citizens renouncing their citizenship and of noncitizen green card holders who have been allowed to live and work in the US. Under Internal Revenue Code § 877A, the property of “covered expatriates” is taxed at 15% on a mark-to-market basis on the day before expatriation.

Senators Chuck Schumer (D-NY) and Bob Casey Jr. (D-PA) have more than once tried to enact the Ex-PATRIOT Act (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy). Their bill would have doubled the tax on Americans leaving the US for tax reasons to 30%. These efforts to keep money from leaving our shores are reminiscent of exit taxes imposed on Jews leaving Nazi Germany in the 1930s and by Rhodesia in the 1970s. Grover Norquist, president of Americans for Tax Reform, suggested that Schumer “probably just plagiarized it and translated it from the original German.”

Since 1996 American citizens who renounced their citizenship to avoid taxes could be denied a visa to return to the US. The Ex-PATRIOT Act would have replaced that 1996 Reed Amendment with its own provision denying admission to “specified expatriates” and shifting jurisdiction from the Attorney General to Treasury and Homeland Security.

In 2012, in response to Facebook cofounder Eduardo Saverin renouncing his citizenship, Senator Casey warned that: “We simply cannot allow the ultra-wealthy to write their own rules.” Today many of those renouncing their citizenship aren’t the ultra-wealthy evading taxes. Many are overseas Americans who find that they can’t do business with FFIs, are not free to make their preferred investments, are hopelessly overburdened by trying to comply with incomprehensible and complex regulations, and are genuinely afraid of the severe consequences if they make a compliance mistake. Yet Bruce Ash, chairman of Republican Overseas Action Inc., concluded that the Obama administration “is building a virtual Berlin Wall to keep overseas Americans from renouncing their citizenship.”

The Obama administration’s response has been to increase the fee imposed by the State Department on those renouncing citizenship by 422% from $450 to $2,350.

These 3 Tips Could Save You Thousands of Dollars

From International Living Postcards comes this article By Nick Hodges, CPA/PFS, MBA, CFP

It's easy to throw up your hands in despair at the thought of filing your tax returns. It doesn't help that it seems like the rules are forever changing; the vast amount of confusing and contradictory information out there just makes matters worse.

But figuring out your taxes can be, if not easy, then at least straightforward—and a massive money-saving measure, too. Do it right and you can cut down on your tax bill and ensure you're protecting yourself against penalties that can stretch into tens of thousands of dollars.

Here are three of my best tips to save you money and to avoid unnecessary penalties:

1. Know how and what to report on foreign bank accounts
   Many Americans who are building homes offshore open local bank accounts to fund their building project. These accounts often have balances at one time or another that exceed $10,000. This is your IRS reporting threshold.
   If you have an account like this or multiple foreign bank accounts that when combined, total $10,000 or more at any time during the year, you have an additional and separate form to file. This form is the FinCen Form 114 (Report of Bank and Financial Accounts, also known as the FBAR). It is filed separately from your individual tax return. It is due by June 30th of the year following and must be filed electronically.
2. If you disclose, you likely won't pay out more in taxes
   If you're an American living or investing abroad, you may need to file additional IRS disclosures. Rest assured, though: These forms rarely result in additional taxes. Disclosing will also ensure you avoid any penalties, which usually start at around $10,000 for each and every unfiled (or incorrect) reporting form.
   There are a few instances which might cause you to have additional forms to file with your individual tax return. These include buying foreign real estate abroad, using a foreign corporation, opening foreign bank accounts, and investing offshore in businesses, securities, or insurance policies.
   A foreign corporation is reported on IRS Form 5471. For disclosing your foreign financial assets, you'll need IRS Form 8938. There is a threshold you should know, usually starting at a total of $50,000.
   Here's a filing perk you might appreciate: If you are out of the country on April 15, you receive an automatic extension for filing your Federal tax return to June 15. The IRS still wants your money; you have to pay any tax due by April 15.
3. Leave from a no-income tax state
   If you currently file a state tax return and have some extra time before you move abroad, you should consider what we call "The move before you move." States like California and New York want you to continue to pay them state income taxes up to two years after you move abroad. Many of our clients tell us that they will just deal with it when it comes up. But who really wants to fight with a state government from a gorgeous beach two years after you move?
   Besides, if you pick the right state to leave from, you can effectively eliminate that needless inconvenience...and all of your state income tax issues and requirements.
   With just a little forethought and planning, you could potentially save yourself tens of thousands of dollars in income tax

BREAKING NEWS: US EXPATS IN MEXICO LEFT STRANDED IN LATEST FATCA ESCALATION

[Editor's Note: The following post is by TDV Editor-In-Chief, Jeff Berwick]

As the first set of Foreign Account Tax Compliance Act (FATCA) compliance issues for banks worldwide is set to come into effect on July 1 we have seen a flurry of banks around the world advising US citizens that they will be immediately closing their accounts.

None has been so far reaching as this notice sent to US citizens who have accounts at Banamex USA in Mexico this week, however.

Banamex USA's parent, Banamex, is the second largest bank in Mexico and there are over 1 million US citizens living in Mexico, by far the largest amount of any country, and so this news will be felt over a very widespread area. 

Notices have begun to be sent by Banamex USA, a bank operating in Mexico and used by many American expats in Mexico, to all US citizens notifying them that their accounts will be closed within 30 days.

Here, here and here you will find three separate online discussions surrounding Banamex USA's summary closure of American's accounts.

In most of the forums people know the reason why - FATCA - but in one of the forums in particular the people are not even aware of FATCA and its implications.  This action by Banamex USA is, of course, because of FATCA, which has forced 77,000 banks in 70 countries to surrender all information on American customers to the Internal Revenue Service (IRS) or be extorted and possibly put out of business altogether.

Banamex USA, a subsidary of Citibank with its headquarters in Los Angeles, has sent letters to many US customers informing them that their accounts will be closed June 30. As one online commenter wrote:

"No more SS check deposits: no more linking of accounts to Banamex Mexico, no more credit card, no more ATM for free, no more nada."

One customer was told that it was a "bank decision" with no reason given why. This move has left former account holders scrambling to find a bank that will let them open an account without their presence in Mexico, something likely impossible to find.

It does not appear that all accounts will be closed, but nobody knows Banamex USA's strategy here, even banking insiders in the US who we have contacted who are confused about what is going on. 

What's for sure is this: Are you an American expatriate living abroad or an American currently thinking of moving abroad?  This could and likely will happen to you.

OPTIONS FOR US EXPATS IN MEXICO

There are many ways to protect yourself and to sidestep many of the issues that FATCA will be bringing upon US citizens trying to transact in the financial system worldwide.

In the case of Americans who live and/or spend a large amount of time each year in Mexico one solution is to attain Mexican citizenship (this is a process that TDV Passports can help with).  By doing this you can still have bank accounts in Mexico if you so chose as you can open the account as a Mexican citizen, not as a US citizen, thereby not being restricted by banks that do wish to deal with US citizens due to the egregious nature and expense of filing with the US government all transactions of US citizens.

Having a second citizenship, especially for US citizens, is a very prudent move as it has become very difficult to do anything financially, worldwide, as a US citizen.  It also has a tremendous amount of side-benefits including large tax breaks (up to nearly $200,000 per year, tax free, for a married couple if they live outside of the US)... and if you choose to renounce your US citizenship the benefits can be massive for those with a high net worth or income as this would unchain US citizens from the worldwide taxation imposed on them by the US government.

Other options that are still available to US citizens is to re-organize their affairs internationally using things like offshore trusts which are specifically set-up in a way that FATCA regulations do not apply to it.  This is a service, for high net worth (over $1 million) US citizens that is offered exclusively by TDV Wealth Management (TDVWM).  TDVWM has recently held two Crisis Conferences in Panama and in Mexico helping US citizens stay ahead of the curve and to organize their affairs prior to events, which we predicted, such as more banks worldwide closing accounts for Americans.

We also predict that more countries in the West will begin to enact FATCA like controls as the economy in the West continues to fall and governments begin to enact more egregious worldwide taxation laws.  In the case of Canadians, for example, many "snowbirds" (those that are retired and usually spend six months or more per year in the US) are beginning to be deemed "US resident" even without their knowledge and will soon find themselves under attack by the IRS for tax liabilities.  As well, the Canadian and US governments have reached all manner of agreements tying the sharing of financial information between the two countries.

As we've researched and written here and at TDV Wealth Management Crisis Conferences (which we will be holding another one soon, likely in Mexico due to recent events), FATCA is very real and Americans abroad will be forced to adapt and quickly. Many might simply end up without a bank account altogether and unable to open one abroad when they get this now all-too-common letter that your bank no longer wants to serve you.

We hate to constantly be the bearer of bad news but those who have been following TDV know that we have been warning of these events for a number of years.  And we expect things to go nowhere but downhill from here as governments in the West implement nefarious capital controls such as FATCA.

Stay tuned at The Dollar Vigilante blog as we continue to cover FATCA and its consequences and offer insights, news, analysis and solutions to protect yourself at The Dollar Vigilante newsletter.  And pass along this particular news to US citizens who are Mexican expats to inform them to prepare for more bank account closures for US citizens and what they can be doing about it to protect themselves.

Have a FATCA story or concern? Join the discussion with other Dollar Vigilantes!

Anarcho-Capitalist.  Libertarian.  Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks.  Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast.  Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.