Israel Matzav

Obama turning foreign banks into enforcers of US tax code

Somehow, in all the confusion when Obamacare was passed, I managed to miss this little gift from the US government to its citizens residing abroad.

FATCA, or the Foreign Account Tax Compliance Act, comprises sections 1471 – 1474 of the U.S. Internal Revenue Code (IRC). The code sections were passed into law in March of 2010 as part of H.R. 2847, a job creation bill known as the HIRE Act. The law attempts to ensure that U.S. persons don't move money abroad without paying any taxes owed on it to the U.S. government.

The law is an attempt by the United States government to force both U.S. persons utilizing foreign financial institutions, as well as the foreign financial institutions themselves, into enforcing U.S. tax laws. The primary mechanism to force compliance is through the use of a 30 percent withholding tax on all U.S. dollar transactions that pass through a U.S. Federal Reserve Bank and are sent to a non-compliant financial institution.

Foreign Financial Institutions (or FFIs), regardless of whether their national jurisdiction has entered into a Tax Information Exchange Agreement (TIEA) with the United States, will be forced to enter into a Private Sector Agreement with the U.S. IRS, or risk losing the U.S. and dollar-denominated markets, by becoming a “non-compliant” FFI.

Every individual bank now must determine how it plans to operate vis-à-vis U.S. persons after January 1, 2013, when the new act takes effect. Because the law requires retroactive information sharing, an individual bank must decide how it plans to operate and give notice to its clients in 2011, so they have an opportunity to close or move their accounts prior to January 1, 2012.

...

If the bank decides to continue serving U.S. clients after January 1, 2013, then it must further decide whether or not to be compliant with the provisions of FATCA.

The choice is to either provide the information required by the U.S. IRS to be compliant, and thereby waive bank privacy to those U.S. clients, or maintain bank privacy and thereby be in noncompliance with the IRS as a FFI. Noncompliance would subject the bank to a 30 percent back-up withholding tax on any funds moving to that FFI.

If the bank chooses to enter into a private agreement as a compliant FFI, it will be required to gather a wide range of information on both individual and entity accounts, to determine whether there is U.S. ownership of the account. The bank will also require that the client sign a waiver of any restrictions (such as Belize’s bank privacy laws) that would prohibit the bank from reporting to the IRS on the client and their activities.

The law also requires extra due diligence on high-value accounts over $500,000, as well as annual retesting of those accounts beginning in year three of the FFI Agreement. Additionally, each bank entering into a FFI will be asked to certify that it did not engage in any activity or have any formal or informal policies and procedures in place directing, encouraging or assisting account holders with respect to strategies for avoiding identification of their accounts as U.S. accounts.

According to the friend who told me about this, Switzerland has told the US to **** off. Israel, on the other hand, has decided to comply. Of course, Israel forced non-Israeli resident US citizens to close their accounts in all Israeli banks about a year ago, which means that the only people this will affect are American citizens residing in Israel.

I can't wait to see what the banks will charge us for their costs of complying with this legislation. Of course, the HIRE act was passed along with Obamacare and is probably meant to finance it as well.

What if we all just give up our US citizenship? What could go wrong?

Read the whole thing.

Labels: HIRE act, Israeli banks, Obamacare

posted by Carl in Jerusalem @ 2:39 PM