The Ultimate Guide To International Taxation

Shady, secret offshore banks accounts make great fodder for fiction novels and binge-worthy dramas, but in fact, there are many legitimate reasons why U.S. taxpayers have offshore accounts.

Some of these reasons include diversification, better interest rates, and that some of the best money managers in the world are found outside the United States. Other reasons include convenience while traveling or if living abroad, maintaining inherited assets in a foreign country, and having relatives back in another country whom they are supporting.

American business interests have also grown across the globe, and both multinational corporations and individuals maintain accounts abroad to fund their various business operations or their living expenses.

Under the law, U.S. citizens, resident aliens, and certain nonresident aliens are required to report worldwide income from all sources including foreign bank and financial accounts to the IRS under the Foreign Account Tax Compliance Act (FATCA).

Additionally, under FATCA, taxpayers must certify their foreign or nonforeign status by filing forms Form W-8BEN or Form W-9, respectively. Taxpayers are required to pay taxes on income from these accounts at their individual tax rates.

This overseas income is reported on a disclosure form, Foreign Bank Account Report (FBAR), and must be filed by certain taxpayers with respect to financial accounts maintained abroad. Although this is often a concern for the millions of expatriates living and working in foreign countries, FBAR applies to an even broader demographic of taxpayers. Remember the acronym FBAR; we will be referring to it a lot.

U.S. taxpayers using offshore accounts, including foreign banks, security accounts, and trusts, to avoid paying taxes are committing fraud.

The Departments of Justice and Treasury have joined forces to crack down on the failure to report foreign accounts and income. They are utilizing the Internal Revenue Service, Financial Crimes Enforcement Network (FinCEN), and the United States Attorney General’s office in a collaborative effort to target individuals, banks, foreign financial institutions, and countries who do not comply with FATCA and U.S. tax laws.

As their effort has proved profitable with $6.5 billion dollars of collected revenue, more assets have been allocated to allow Justice and Treasury to expand upon their success.

This is where the services of an experienced tax attorney are advantageous. While your CPA may excel at preparing your tax returns, international tax laws are very complex. Recent changes have been made to the reporting requirements and deadlines, and two IRS voluntary disclosure programs have ended.

This tightening up of the “escape hatches” has made taxpayers with foreign assets more vulnerable to scrutiny and that is where our firm, Brotman Law, can help. We have helped many clients untangle the knots associated with FATCA and with completing the numerous disclosure forms.

That is why we created this free book, “The Ultimate Guide to International Taxation.” Whether you were actively looking for information on this topic or stumbled upon it and realized you need help, you are in the right place.

Our firm has helped many clients with their FBAR filings or voluntary compliance plans. Whether or not you retain us to represent you in your international tax dealings, we wanted to make this information available. Information is power.

Thank you in advance for reading “The Ultimate Guide to International Taxation.” It was a labor of love and our law firm welcomes all questions, comments, concerns, and feedback that you may have about this free resource.

The Foreign Account Tax Compliance Act (FATCA) mandates that U.S. taxpayers, including those living outside of the United States, report their financial accounts held outside of the U.S. It also requires that foreign financial institutions report information to the IRS about their U.S. clients.

The U.S. is also in pursuit of Intergovernmental Agreements (IGAs) with other countries to make sure that the requirements of FATCA are carried out by foreign financial institutions. Currently, there are 113 countries that have IGAs with the U.S.

FATCA was passed on March 18, 2010, as an amendment to an appropriations bill known as the HIRE Act.

FATCA has three main provisions::

•   It requires foreign financial institutions, such as banks, to enter into an agreement with the IRS to identify their U.S. personal account holders and to disclose the account holders’ names, TINs, addresses, and the transactions of most types of accounts. Some types of accounts, notably retirement savings, and other tax-favored products may be excluded from reporting on a country-by-country basis. U.S. payers making payments to non-compliant foreign financial institutions are required to withhold 30 percent of the gross payments. Foreign financial institutions which are themselves the beneficial owners of such payments are not permitted a credit or refund on withheld taxes absent a treaty override.
•   Form 8938: Statement of Specified Foreign Financial Assets

U.S. persons owning these foreign accounts or other specified financial assets must report them on a new Form 8938 which is filed with the person’s U.S. tax returns if the accounts are worth more than $50,000 at the end of the year or more than $75,000 at any point during the year; a higher reporting threshold applies to U.S. persons who are overseas residents and others. This form should be submitted with your tax returns by the tax deadline. More on this form will be discussed in Chapter 6.

• It closes a tax loophole that foreign investors had used to avoid paying taxes on U.S. dividends by converting them into “dividend equivalents” through the use of swap contracts.

Armed with new weapons to make foreign governments and financial institutions comply, the Departments of Treasury and Justice wasted no time in testing out their new powers. The first target was the most obvious: Switzerland.

UBS was the target of an aggressive enforcement action. In the end, UBS was forced to turn over the names and information of 4,000 U.S. taxpayers. In order to settle a corporate criminal action for failure to comply, UBS paid a $780 million dollar fine.

Switzerland’s oldest bank, Wegelin & Co. fared far worse. It paid only $74 million in fines, restitution, and forfeitures, but it was dealt the death penalty when its board agreed to cease to do business to avoid criminal liability.

In August of 2013, to avoid further prosecutions, the United States and Switzerland signed an agreement that provides for fines in exchange for non-prosecution agreements for banks that have facilitated American tax evasion.

Given the success in shutting down the Switzerland offshore banking industry for U.S. taxpayers, it is believed that the Treasury and Justice will be launching its next assault on Israel and the Caribbean.

Keep reading to learn more about FATCA and FBAR, filing requirements, how to complete the forms, penalties, and appeals. The following is an overview and summary of each of the different chapters in “A Tax Attorney’s Complete Guide to International Taxation.”