The US Vendetta Against All Things Off-Shore

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Recently by Mark Nestmann: USA to Non-Resident Citizens: ‘PayUp, or Face the Consequences’

In my last blog entry, I described the latest salvo against offshore financial privacy from the IRS: the requirement to file a tell-all form annually with your tax return detailing “foreign financial assets” with an aggregate value exceeding $50,000.

The IRS recently issued a draft version of this Form 8938, along with preliminary regulations on how to complete it. They regulations don’t specify what you don’t need to report, but assuming they don’t change dramatically between now and the time they’re issued in final form, the following types of assets appear to remain non-reportable:

  • Foreign real estate. If you own real estate outside the United States in your own name, I don’t know of any requirement to disclose that ownership on Form 8938 or on Treasury Form 90-22.1 (the “FBAR” form). However, you must also report and pay tax on any income from offshore property. And, if you own property through a foreign entity, you must disclose the existence of that entity on Form 8938 and file a separate information or tax return for it annually.
  • Foreign life insurance or annuity policies. A foreign issuer of a life insurance or annuity policy could be considered a “counterparty” according to the definitions in the instructions for Form 8938. However, the examples listed in the draft instructions say nothing about foreign life insurance or annuity policies. But, you need to report these policies on the FBAR, as you can read here.
  • Precious metals investments. It’s clear that if you hold precious metals through a bank account, you must report the existence of the account on both Form 8938 and the FBAR. But, if you hold precious metals in a safety deposit box or private vault box to which you have direct and exclusive access, they appear to be non-reportable. Other storage arrangements may or may not be reportable on the FBAR, but not on Form 8938, as precious metals don’t appear to be a “specified foreign financial asset.” The safest recommendation is to report any type of offshore storage of precious metals in which you don’t have direct and exclusive access on the FBAR.

There’s much more to come in the continuing U.S. vendetta against all-things offshore. An increasing number of offshore banks and service providers won’t even deal with U.S. clients anymore, a legacy of the USA PATRIOT Act, over-zealous IRS investigations, and new regulations that force many offshore brokers who deal with U.S. residents to register with the Securities & Exchange Commission.

And, beginning in 2014, money transferred from the United States to foreign financial institutions and non-financial entities will be subject to a 30% withholding tax. The only way to avoid the tax will be for the institution or entity to enter into a one sided disclosure agreement with the IRS. If entering into the agreement violates a foreign law, that’s too bad. The only alternative for the institution or entity is to get rid of its U.S. clients. Thousands of offshore banks and service providers are doing just that.

There’s only one way out of this mess for U.S. citizens and permanent residents. That’s to legally and permanently end your future U.S. tax and reporting obligations via a legal process called expatriation. This process requires that you give up your U.S. citizenship and passport if you’re a citizen, or your green card if you’re a permanent resident. It’s a big step, and one you shouldn’t take lightly. Expatriation may also trigger a big tax bill, and it doesn’t affect past tax and reporting obligations. What’s more, if you have U.S. property or income, you may still need to deal with the IRS even after you expatriate.

For more information on expatriation, consult the latest edition of my special report, The Billionaire's Loophole, available here.

Reprinted with permission from The Nestmann Group, Ltd.

Mark Nestmann [send him mail] is a journalist with more than 20 years of investigative experience and is a charter member of The Sovereign Society's Council of Experts. He has authored over a dozen books and many additional reports on wealth preservation, privacy and offshore investing. Mark serves as president of his own international consulting firm, The Nestmann Group, Ltd. The Nestmann Group provides international wealth preservation services for high-net worth individuals. Mark is an Associate Member of the American Bar Association (member of subcommittee on Foreign Activities of U.S. Taxpayers, Committee on Taxation) and member of the Society of Professional Journalists. In 2005, he was awarded a Masters of Laws (LL.M) degree in international tax law at the Vienna (Austria) University of Economics and Business Administration.

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