Owe Back Taxes? Lose Your Passport

31 Mar

This was published by Bloomberg yesterday:

Americans filing from overseas face Byzantine rules and draconian penalties, courtesy of the IRS.

by Ben Steverman (Bloomberg)

The roughly 8 million Americans who live abroad automatically get a couple additional months each year to file their taxes. Don’t expect them to be grateful.

Filing to the Internal Revenue Service from overseas is more confusing, complicated and expensive than it is for Americans at home (and that’s saying something). Unlike almost every other country in the world, the U.S. demands its citizens pay taxes on all foreign income. They must file even if they have lived and worked abroad for decades, and even if they’re already paying hefty taxes to the countries where they reside.

Now it’s getting worse. In an effort to fight tax evasion, the IRS recently began forcing expatriates to report not just their income, but additional information on savings and investments—rules that have made it harder to open bank and brokerage accounts overseas. More ominously, the IRS and the State Department are also implementing a provision approved by Congress in December that could revoke the passports of Americans who owe too much–raising the prospect of being stranded abroad on account of poor arithmetic.

“A lot of people are very, very angry about the whole situation,” said David McKeegan, co-founder of Greenback Expat Tax Services, which specializes in U.S. international tax preparation. For Americans abroad, he said, “It’s very easy to feel like you’re a criminal [for] doing normal things.”

Here are several of the biggest problems U.S. citizens face:

Unnecessary Hassle
Lynn Milburn spends months worrying about her U.S. taxes each year, even though she never owes anything in the end. To be fair, the IRS often excludes the first $100,000 in foreign earnings, along with some housing expenses. It also lets Americans deduct some of the taxes they pay to local governments, which usually levy at higher rates than the U.S. does, especially in such places as Western Europe, where most expatriate Americans live. After that, however, it’s open season.

Milburn, 57, has lived overseas most of her adult life. Originally from Seattle, she recently moved from Australia to France. “Every time my situation changes, I’m not sure where I stand,” she said. Milburn said she is “petrified” of being fined; although she keeps her financial life very simple, filling out the forms correctly can be a challenge. For example, while the IRS asks about income from January to December, Australia’s tax year runs from July to June. Let the migraine begin.

A typical U.S. tax return for Americans living in the U.K. is 40 to 50 pages long, even though they often end up owing nothing, according to Robyn Limmer, head of tax at Frank Hirth, an accounting firm based in New York and London that specializes in cross-Atlantic tax issues.

And before you can say H&R Block, it bears noting that hiring a tax preparer who understands how to file from abroad isn’t cheap. “Many people have to pay thousands of dollars just to show they owe no money to the IRS,” said Keith Redmond, 51, an American who has lived in Paris for 16 years.

Lost in Translation
How do you say “tax-deferred retirement account” in Turkish or Thai?

Every country has its own way of taxing income, savings, investments and pensions, sometimes making it impossible to explain to the IRS what’s going on. Tax treaties can help specialists navigate some of these issues, but these agreements can be enormously complicated and maddeningly vague. Limmer said that even in the U.K.—where “at least we share a common language”—accountants can disagree with each other on how to sort things out, especially in the “particularly tricky” area of pensions.

Milburn isn’t an accountant or lawyer, but she has noticed the same thing: “I actually don’t think that the IRS or tax professionals necessarily know 100 percent what to do. I think it’s always a bit of a gray area. Because how can you convert something in another country to a U.S. equivalent?”

IRS agents stationed at U.S. embassies used to be able to help, but budget cuts forced the agency to close the last of those offices (in London, Paris, and Frankfurt) last year.

Double Taxation
Because the rules are so confusing, some say they often end up being taxed unfairly, paying the IRS and their home country on the same income. Brian Krahmer, 40, a Minnesota native who moved to Germany in 2014, must pay U.S. self-employment tax on his freelance income–even though the work, mostly software development, is for German companies. “If I’m already filing a German income tax return on the money earned, I don’t see any fairness from also having to file in the U.S.,” he said.

The rules can feel unfair, even when they don’t technically result in double taxation. For example, the IRS demands that Americans pay capital gains taxes on sales of homes in the U.K.—gains that can be greatly inflated by currency swings. The U.K. doesn’t have the same tax, but it does impose a tax on home purchases. An American in London who wants to move has the pleasure of paying both.

Treated Like a Criminal
The IRS’s fight against tax evasion has had its successes. Many hidden Swiss bank accounts are no longer so secret, for example. But provisions that catch millionaires hiding money overseas can also ensnare middle-income Americans working and living abroad. As a result, banks and investment companies, forced by the IRS to keep close track of their American clients, are becoming reluctant to take them on.

“We, as Americans overseas, cannot live normal lives,” said Redmond, originally from Washington, D.C. “We’re seriously limited in being able to save like stateside Americans.”

Most living outside the U.S. simply want to know how much they owe the IRS vs. the local tax collector. “These are not people who are hiding money,” Limmer said. Nine times out of 10, she estimated, an American living in London is paying more tax than a comparably compensated British citizen.

Passport Threat
The new passport-revocation rule, slipped into a transportation funding bill signed by President Barack Obama, raises the stakes. It allows the U.S. to revoke the passport of any American whose tax debt exceeds $50,000.

It’s not hard to see how expatriate taxpayers could get to this level, especially if they’re late in realizing they needed to file in the first place. The fines for failing to report bank accounts are high; the IRS can impose a penalty of $10,000 for each violation of the rules. “If the government enforces this in the most stringent way possible, this could be hugely horrible for people who live overseas,” McKeegan said.

Last month, members of Congress urged the State Department to “consider the unique circumstances of overseas Americans” before revoking anyone’s passport. An IRS spokesperson declined to comment on the passport rule or other specific taxpayer concerns. In October, the agency said its “offshore voluntary disclosure program,” a process for taxpayers to catch up on filing obligations, had collected more than $8 billion since 2009.

Accidental Americans
Many Americans who live abroad simply don’t know they need to file, and the IRS lacks an efficient way to notify them. “Nobody sends you a memo when you go overseas,” McKeegan said.

An unknown number of Americans don’t even realize they’re U.S. citizens. Because the U.S. grants citizenship for, among other things, being born in the States, babies delivered in the U.S. to non-American parents are sometimes brought back home in diapers and learn only decades later that they need to file to the IRS every year.

Increasingly, these “accidental Americans” are discovering their citizenship the hard way, as the IRS tightens tax evasion rules regarding banks. “’Am I going to get arrested at the airport?’” McKeegan said they often ask him. “You spend the first 10 minutes talking them off the ledge.”

London Mayor Boris Johnson, who was born in the U.S., had to pay the IRS last year for capital gains on his sale of a house in north London. “I think it’s absolutely outrageous,” he said when he learned of the debt in 2014. “Why should I? I haven’t lived in the U.S. since I was five years old.”

Johnson has previously said he would like to renounce his U.S. citizenship, and he’s not the only one. According to Treasury Department data, the number of Americans renouncing their citizenship last year jumped 25 percent, to a record 4,279. How much of this is the fault of the IRS and its get tough campaign may remain as mysterious as the tax code.


It was published in AccountingToday.com where I added the following comment:

Thank you Ben Steverman for accurately depicting the taxing situation that we dual citizen Expats are placed in by the IRS. I, like my fellow Americans living overseas, have an “foreign” bank account, incidentally, not in Switzerland, but equally under the IRS gun. The eight billion dollars collected by the IRS, was completely from Americans living in the USA and not from Expats living overseas. These were tax evaders living in Chicago, New York, Miami, and other places. They were hiding their money in foreign banks. I use my “foreign”bank, as you use your corner bank,for direct deposits from my employer, for direct payments to the electric company, and all the functions provided by anyone living in the US and banking there. Nonetheless, because the IRS says it is a FFI (foreign financial institution),I am subjected to FATCA, FBAR, and all the other inscribed laws as means of complicating my life as an American living overseas the. I was also subjected to a generalized audit and they demanded “official” translations of all my self-employment income and expenses, making my life even more miserable for that period.

Moving from Switzerland to Singapore

10 Mar

Is Singapore the Next Switzerland for U.S. Tax Crackdown? My answer is a resounding YES !!!!!!

This is from today’s Accountingtoday.com

By David Voreacos

The Internal Revenue Service is seeking to force UBS Group AG to turn over records on an account in Singapore held by a U.S. citizen, potentially opening a new front against offshore tax evasion beyond Switzerland.

The IRS last month asked a federal judge in Miami to force UBS, the largest Swiss bank, to produce documents on Ching-Ye Hsiaw, who lives in China. The judge on Wednesday told UBS to show up in court on March 31 to explain why it has refused to supply the account records.

“They’re holding UBS hostage in the U.S. by saying you subjected yourself to U.S. jurisdiction, now produce these records outside the U.S.,” said Jeff Neiman, a former federal prosecutor. “It’s setting up a showdown of Singapore secrecy versus the U.S. need to enforce its tax laws.”

Singapore will lift banking confidentiality when foreign authorities ask it to do so and when the law is used to shield criminal activities, according to a person with direct knowledge of the city-state’s bank-regulation framework who asked not to be named because of an ongoing court case.

“No jurisdiction is off limits,” Acting Assistant Attorney General Caroline D. Ciraolo, who oversees the U.S. Justice Department’s Tax Division, told the Federal Bar Association in a speech Friday. She said “our investigations of both individuals and entities are well beyond Switzerland at this point.”

UBS spokesman Gregg Rosenberg declined to comment on the case. Hsiaw couldn’t be reached for comment.

Singapore Secrecy
The U.S. has focused largely on Switzerland in recent years as it has fought offshore tax evasion. More than 80 Swiss banks, including UBS and Credit Suisse Group AG, have agreed to pay a total of $5 billion or so in penalties and fines. The question is where the IRS and the Justice Department will turn next as they sift through a trove of data gathered from Swiss banks and from more than 50,000 U.S. taxpayers who disclosed their accounts to avoid prosecution.

The Hsiaw case provides some clues. IRS agents served a summons on UBS in 2013 for records of his account in Singapore from 2001 to 2011. The bank said it couldn’t produce them because Singapore’s bank secrecy laws prevent disclosure without permission from Hsiaw, which he hasn’t provided, according to a court filing.

“Even if Singapore’s bank secrecy laws, as UBS contends, precludes disclosure of the summoned bank records relating or pertaining to Hsiaw’s Singapore account(s), international comity requires that the records be disclosed,” IRS revenue agent James Oertel said in the filing.

Neiman, the former prosecutor, said that “UBS can be held in contempt if they don’t produce the records. I think it’s the IRS’s way to start getting at Singapore.”

Singapore is prepared to help in foreign criminal proceedings by sharing banking information through established channels, the person with knowledge of its bank regulations said.

Neiman was one of the prosecutors on a landmark case in 2009, filed in Miami, in which UBS avoided prosecution by paying $780 million, admitting it encouraged tax evasion, and agreeing to turn over secret account data on U.S. citizens. As part of the settlement, UBS provided information on Hsiaw’s Swiss account, along with about 4,500 others.

The case is U.S. v. UBS, 16-mc-20653, U.S. District Court, Southern District of Florida (Miami).

Another Swiss Bank Falls Into Line

23 Dec

Rothschild to Pay $45.4 mn to End U.S. Tax Probe

December 18, 2015
This was announced in today’s  AccountingToday.com online.


“Edmond de Rothschild (Suisse) SA agreed to pay $45.4 million to avoid prosecution for helping U.S. clients evade taxes, admitting it aided them in moving cash and using sham offshore entities to hide money from the Internal Revenue Service. The bank will also be handing lists of their tax evading clinets

Rothschild is the 68th Swiss bank to reach an accord with the U.S. Justice Department this year, which has secured $802.3 million under a disclosure program that requires firms to say how they helped Americans cheat and where their money went.

In a non-prosecution agreement, the bank signed a statement of facts that detailed misconduct by relationship managers at Edmond de Rothschild (Suisse) and a Lugano unit that handled 950 U.S. accounts that held $2.16 billion between 2008 and 2013. In that period, Rothschild processed at least 155 cash withdrawals of $30,000 or more for 53 U.S. clients, including one that took out $2.53 million in one transaction, according to the agreement.

The relationship managers coordinated with an external asset manager who set up an offshore entity in Singapore, and they “knew or had reason to know” clients used advisers to set up structures in the British Virgin Islands, Panama and Liechtenstein, according to the pact, released Friday by the Justice Department.

Rothschild said the settlement will have no impact on its financial results. The bank links itself to seven generations of financiers who have advised royalty, governments, and railway barons for 250 years.

The bank also said in the accord that it helped clients in “covertly repatriating offshore funds” by providing credit cards, cash cards and debit cards to move money not declared to the IRS. “These services allowed U.S. clients to withdraw funds remotely or pay for goods and services without a paper trail back to their undeclared accounts in Switzerland,” according to the agreement.”

No doubt they will also reveal to the IRS the names of their clients who are possible tax evaders. Again, I contend that probably all of these tax evaders are residents of the USA and NOT EXPATS living abroad. Nevertheless, American citizens abroad will continue to come increasingly under scrutiny as possible tax cheats. FATCA marches forward.


13 Oct

If the answer to this question is yes, then they are going to catch you, fine you, and maybe even throw you in jail. You cannot escape and the noose is tightening around your neck. And I, as a law abiding expat, have no sympathy for you. You deserve to be caught and to pay for your crime. I am glad that the thought of doing such a thing never crossed my mind. Yes, I’d heard of offshore accounts and the like, but I always felt it was my duty as a law abiding citizen to pay taxes. The government was not run on air. It needed money to provide services for those in need, to protect us and to enable us to live in an orderly society. Today I read an article in Accounting Today with details about how the Justice Department is exposing those who did evade taxes and who did use the Swiss banking system’s tendency to hide the secrets of thieves and liars to hide assets in corporations, foundations or trusts in Liechtenstein, Panama, the British Virgin Islands, in Hong Kong, in Singapore and Israel, my adopted country, of which I am also a citizen. But once again, as I have stated so in the past, I emphasize that these individuals using these banks are nearly 100% residents of the USA and NOT EXPATS, LIVING ABROAD AND USING THEIR LOCAL BANKS AS FINANCIAL INSTITUTIONS TO DO THEIR EVERYDAY BANKING. I am quite sure that all of the 6 million or so expats laud the work of the Department of Justice as described in this article below and want those citizens who are giving expats a bad name to be caught and punished.

U.S. Chases Swiss Bank Secrets to Singapore and Israel

Newark, N.J. (October 12, 2015)

By David Voreacos and Giles Broom


At a rate of one or two a week, Swiss banks are doing what was once unthinkable: revealing to the world how they helped wealthy Americans cheat on their taxes.

Once bastions of secrecy, 41 Swiss banks signed amnesty agreements this year with the U.S. Justice Department that required disclosing the tricks they used to help customers hide assets, naming bankers and middlemen who enabled them and detailing the flow of untaxed money. They’ve also prodded thousands of reluctant Americans to disclose accounts hidden from the Internal Revenue Service.

Partner Insights

The flood of information is now giving U.S. investigators intelligence to try to build new cases against individuals and institutions in other countries, said Caroline Ciraolo, the Justice Department’s top tax prosecutor. Financial institutions in Singapore and Israel are possible targets, according to lawyers and prosecutors.

“The money is moving out of Switzerland to a variety of jurisdictions,” said Ciraolo, an acting assistant attorney general. “We’re following leads and following the money, wherever that leads us.”

The Swiss amnesty program is part of a tax evasion crackdown that grew after 2009 when Switzerland’s biggest bank, UBS Group AG, paid $780 million to avoid prosecution, and the U.S. began criminal investigations of 14 other banks, including Credit Suisse Group AG.

2013 Offer
Broadening the push, the U.S. in 2013 offered to forgo prosecuting any Swiss bank that came clean on tax-evasion tactics. So far this year, the 41 banks paid combined penalties of $354.5 million, with BSI SA paying the lion’s share, or $211 million. It’s the most non-prosecution agreements negotiated together, according to Brandon Garrett, a law professor at the University of Virginia who studies corporate prosecutions.

“Normally, I would be concerned about an expansion of non- prosecution agreements, but these cases really are special and difficult,” Garrett said. “It’s impressive how far U.S. prosecutors have gotten in the face of Swiss resistance.”

Martin Naville, chief executive officer of the Swiss-American Chamber of Commerce, said the settlement process has been difficult for many firms, with some feeling they’ve been “slighted and not treated very well.” But he said the penalties were smaller than what many banks had budgeted for.

That’s due in part to an unusual aspect of the amnesty program. Penalties are pegged to how many clients banks successfully pushed to reveal secret accounts and the firms that aided them. The more individuals who came forward, the less banks had to pay.

40 More
Another 40 or so banks may reach non-prosecution agreements this year, according to lawyers representing banks, as the amnesty program winds down. That will free investigators to turn to probing banks in other countries.

U.S. agents interviewed taxpayers who used a Singapore money management firm to hide assets from the IRS, said Bryan Skarlatos and Scott Michel, lawyers who separately represent some of those Americans. They wouldn’t identify the firm, and Ciraolo wouldn’t discuss it.

“Certainly, Singapore would be one of the jurisdictions that we’re looking at,” Ciraolo said.

Societe Generale SA’s Swiss private banking unit admitted in its settlement that it transferred assets of U.S. customers to “corporate and individual accounts at other banks in Switzerland, Hong Kong, Israel, Lebanon, Liechtenstein and Cyprus,” according to its statement of facts. The unit paid a $17.8 million fine. A bank spokesman declined to comment.

In its settlement document, Banque Pasche SA said that client money was transferred to banks located in Israel and Hong Kong “in an attempt to further escape detection.”  An e-mail and phone call to the bank weren’t returned.

Israeli Banks
Israeli banks have drawn special focus from the Justice Department. Last year then-Deputy Attorney General James M. Cole cited “an ongoing and extensive investigation” into hidden bank accounts in Israel. Bank Leumi Le-Israel Ltd. agreed to pay $400 million to resolve its criminal case.

The data coming directly from Swiss banks are supplementing a separate trove the IRS gathered from 50,000 U.S. taxpayers who disclosed their offshore accounts and paid $7 billion in back taxes, fines and penalties since 2009.

The 41 non-prosecution agreements, posted on the Justice Department’s website, provide insight into tax-evasion tactics used by bankers in Switzerland, where it’s been a crime since 1934 to disclose client data. They opened numbered accounts to hide the true owners, held mail to avoid paper trails and let clients access their secret accounts through credit cards, a review of the amnesty statements shows. Banks also helped clients make cash withdrawals to avoid U.S. currency reporting requirements, or converted assets to gold held in safe deposit boxes.

Other Countries
Many clients disguised their money in entities set up in tax havens outside of Switzerland. Of 41 banks that settled, 18 held assets in corporations, foundations or trusts in Liechtenstein; 15 in Panama; 11 in the British Virgin Islands, and four in Hong Kong.

SB Saanen Bank AG’s agreement detailed how an unidentified private banker came to the U.S. to woo wealthy clients. In 2010 and 2011, he entertained clients at the U.S. Open tennis tournament in New York, and Saanen reimbursed for expenses such as “meals with clients at the Mandarin Oriental Hotel, the Carlyle Hotel, and other restaurants in Times Square or along the waterfront.”  The bank declined to comment on the settlement.

Some banks admitted that they accepted money from clients who were fleeing institutions that were already under investigation. Banque Pasche said it opened accounts for at least 20 U.S. taxpayers who came from (other Swiss banks under investigation, including) UBS and Credit Suisse.

Surprise Numbers
Far more Swiss banks initially signed up for the amnesty program—106—than expected, said its designer, Kathryn Keneally, who led the tax division before Ciraolo.

Banks were looking for “the finality of a resolution,” she said. They were also pushed by the Swiss Financial Market Supervisory Authority to join.

Michel, whose firm Caplin & Drysdale represents both banks and customers, said the “creative component” of the amnesty program was to deputize banks to police current and former account holders. It also placed a “huge burden” on banks to produce information about employees and intermediaries who aided tax evasion, said Thierry Boitelle, a lawyer at Bonnard Lawson in Geneva.

“The DOJ is getting some very valuable information served up on a silver platter,” Boitelle said.

U. S. Government Hacks Into Expats Financial Files

6 Oct

Oh, it’s all “legal” and condoned by Congress via the HIRE Act of 2010. Yes, you guessed it. It’s called FATCA which requires foreign financial institutions to send the IRS information on the accounts of U.S. taxpayers, or else face stiff penalties of up to 30 percent on their income from U.S. sources. How can the government of the United States of America “require” my local bank here in Israel where I live to send them everything they have in their computer systems about me? The end of the previous sentence tells it all. If my bank doesn’t cooperate, the U.S. Department of Justice will impound the investments of this small bank in the USA. The US Treasury negotiated agreements with other countries to allow for reciprocal exchange of tax information on both U.S. and foreign taxpayers from both U.S. and foreign banks, in accordance with existing tax treaties to prevent double taxation. This reciprocal exchange of tax information will flow from the banks into each country’s tax authority and through them to the IRS. Because these “agreements” are reciprocal, there will be a bidirectional flow with the Israel Tax Authority receiving everything that the US Treasury knows about me. What a massive flood of information that I am sure will clog up the computers of the IRS and the ITA. I sincerely doubt that they have thought out how to deal with all this information. Nevertheless, this is in my opinion nothing more than hacking of personal financial information by these government agencies. They whitewash it as being legal, but at best, it can be only termed quasi-legal hacking.

To meet the Sept. 30 milestone, the IRS said it developed an information system infrastructure, procedures, and data use and confidentiality safeguards to protect taxpayer data while facilitating reciprocal automatic exchange of tax information with certain foreign jurisdiction tax administrators as specified under the agreements implementing FATCA. This sounds like government gobbledygook for hacking.

So as of one week ago they have started to hack away at what was once sacrosanct, your personal financial information. Let it be said that I am in no way shape or form hiding anything from any tax authority. I do not evade taxes. I have always dutifully declared all my assets and paid appropriate levels of taxes to both tax authorities. I don’t think that it is proper for the United States to be the only country other than Eritrea that has citizen-based taxation. But until the law is changed, I comply and pay. Let them hack away all they want. May they drown in all the data.


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