British boy marries American girl!
An Americanʼs Reporting Responsibility! The USA imposes personal income taxes based on the principle citizenship taxation under which all citizens of the United States or people deemed US persons are taxed under the same personal income tax system, wherever they reside.! Worldwide from cradle to grave -- forever!
In your passport!
Who really is a ʻUS personʼ?! Citizens! - Born in US! - Outside US with one US citizen parent! - Passport irrelevant! Green card holders! - Whether expired or not! Tax Residents! - 183 day test! - Three Year rolling average test!
Finding the US Person! Passport! We must all ask questions! - - - - - - Where were you born?! Where were your parents born?! Either parent a US citizen?! Have you ever lived in the US?! Have you ever held a green card?! Is your spouse a US person?!
Fundamentals of US Taxation US Person worldwide taxation! Individuals:! - US Citizens! - Lawful Permanent Residents (ʻGreen Card Testʼ)! - Substantial Presence Test! Entities:! - Corporations - jurisdiction of incorporation! - Partnerships - jurisdiction under the laws partnership is formed! - Trusts - Court and Control Test! WORLD WIDE INCOME US PERSON TAXES
US Citizens / Resident Aliens! US Citizens, US Residents & Green card Holders! - Taxed on worldwide income! - Maximum Income Tax Rate 35% > $388,350! - Qualifying dividends and Long Term Capital Gains taxed at 15%! - Worldwide information return filing! - Statutory definition of a resident!!!!!!!!!
Foreign Exclusions! IRC section 911! Foreign Earned Income Exclusion - $95,100! Housing Exclusion! - Threshold - $15,216! - Ceiling - London - $83,600! - Qualifying Expenses! Qualification! - Bona Fide Resident! - Physical Presence Test!
Foreign Tax Credits! Cash (ʻpaidʼ) basis! Refunds / balancing payments! Accruals basis - Irrevocable!
Typical UK tax-free but reportable in the US! Pensions Sale of main home ISAs Offshore Bonds Onshore Bonds National Savings Child Benefit
Typical US tax-free! 401(k) Sale of main home (partly) IRAs Municipal bonds Sec 529 College Savings Annuities
What does an individual file?! Income Tax Returns! Information Returns! - Passive Foreign Investment Company - Form 8621! - Foreign Partnership Reporting - Form 8865! - Foreign Disregarded Entity - Form 8858! - Foreign Corporation Reporting - Form 5471/926! - Foreign Trust Reporting - Form 3520-A/3520! - Foreign Bank Reporting - Form TD F 90-22.1! - Foreign Financial Asset Reporting - Form 8938!
The IRS is looking for revenue! September 9, 2011 - OVDI closed! January 2012 new OVDP starts for Voluntary Disclosure! January 1, 2014 - FATCA starts!
Americans overseas! 7,000,000 Non Resident US Persons Just 462,340 Filed US Tax Returns [Source: http://www.irs.gov/pub/irs-utl/1_09_tas_arc_vol_1_preface_toc_msp.pdf ]
Taxes! Taxes are the life-blood of government, and their prompt and certain availability an imperious need Bull v. United States, 295 U.S. 247, 1935!
How is the IRS finding Americans abroad?! Passport renewals! Whistleblowers! Treaty information exchange! 2009 VDP, 2011 OVDI & 2012 OVDP! Increasing prosecution! FATCA! FATCA!!!!!!!!
Delinquent Filers! Simple system Worldwide Forever! Majority overseas are not compliant! Returns for probably 6 years! Penalties and interest! Potential for mitigation! - Offshore Voluntary Disclosure Program! - Reasonable cause arguments! Professional advice recommended!
Taxes & Foreign Banks! US courts have been increasingly concerned with the proliferation of foreign secret bank accounts utilized by Americans to evade income taxes and conceal crimes.! United States v. Field, 523 F.2d 404, May 13 1976!
Taxes & Foreign Banks! The UBS Case:! - IRS received information on substantially all of the accounts concerned when it initiated the John Doe summons against UBS.! - IRS made a treaty request to the Swiss government describing the accounts about which it requested information.! - The Swiss government directed UBS to turn over information on thousands of accounts to the IRS.! - The judicial enforcement of the John Doe summons was dismissed.! - The Swiss Government agreed to review and process additional requests for information for other banks.!
The IRS Mission! As we continue to amass more information and pursue more people internationally, the risk to individuals hiding assets offshore is increasing... (T)he goal is to get people back into the US tax system. Combating international tax evasion is a top priority for the IRS. We have additional cases and banks under review. The situation will just get worse in the months ahead for those hiding assets and income offshore. The new disclosure initiative is the last, best chance for people to get back into the system. Doug Shulman - Commissioner of the IRS announcing the 2011 OVDI.!
Swiss bank is indicted in tax case! - Wegelin & Company, the 270-year-old Swiss private bank, was indicted in New York on Thursday on federal charges that it had helped Americans evade taxes.! - The indictment follows charges filed Jan. 3 against three Wegelin bankers accused of conspiring to help American clients hide more than $1.2 billion in assets from tax authorities.! - Wegelin was indicted in federal court with three bankers at its Zurich branch, Michael Berlinka, Urs Frei and Roger Keller. Prosecutors said that from 2002 to 2011, more than 100 American taxpayers conspired with the defendants and others to hide accounts from the Internal Revenue Service. The bank held more than $1.2 billion in undeclared assets this year, according to the indictment.! - Prosecutors said Wegelin and the three bankers had wooed American clients fleeing UBS, the largest Swiss bank.! - Wegelin announced on Jan. 27 that it had agreed to a sale to Switzerlandʼs Raiffeisen Group.!!Source: BLOOMBERG NEWS!
Foreign Account Tax Compliance Act (FATCA)! Objective: Find US Taxpayers Method: Make Foreign FFIS Disclose How: 30% Penalty Tax For Non-disclosure
FATCA! A Foreign Financial Institution (FFI):! - Accepts deposits,! - Holds financial assets for the account of others, or! - Engages in the business of investing, reinvesting or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities.!
FATCA! A Participating FFI (PFFI) must :! - Identify its US Accounts including at its worldwide affiliates;! - Comply with due diligence criteria ensuring it has properly identified its U.S. Accounts;! - Provide IRS an annual report about its US Accounts;! - Withhold 30% on withholdable payments made to Non-PFFIs;! - Provide follow up information as requested by IRS with respect to the U.S. accounts;! - Request waivers from any US account holder refusing to be disclosed on the basis of non U.S. law (e.g. privacy or bank secrecy laws), or disinvest them if they refuse to cooperate.!
2010 HIRE Act Participating foreign financial institutions! NON-US ACCOUNT Less than $US 50,000 No indicia of US status Evidence of non-us status ANUAL REPORTING US Non - US Account (NFFE) Non US Account (NFFE) Non Financial Foreign Entity Documented no substantial US ownership (<10%) ACCOUNT DATA MONITORING OWNER DATA MONITORING US Account (NFFE) US ACCOUNT Documented US Person ACCOUNT DATA COLLECTION 30% PFFI 30% Non Financial Foreign Entity Documented substantial US ownership (>10%) EXEMPTED RECALCITRANT ACCOUNT HOLDER Indicia of US status No evidence of non-us statu PFFI Documented FFI Agreement NON PFFI (DEFAULT) Indicia of financial institution No FFI agreement Unclear nature of business No ownership documents Governments Central banks Holding Co (non financial) Insurance (no cash value) In House non fin Hedging NFFE with traded securities An entity required to withhold on a payment that fails to do so automatically becomes liable for any tax due.
FATCA! A US Account means any Financial Account which is held by one or more:! - US Person, or! - US Owned Foreign Entity:! A foreign entity with a Substantial US Owner! - Corporation 10% vote or value! - Partnership 10% profits or capital interest! - Trust Any trust where a US person is treated as an owner
FATCA Examples U.S. Accounts! Example 1 U.S. Person owns securities account. Example 2 U.S. Person owns 10% of a foreign corporation which owns a securities account. Example 3 U.S. Person is the settlor of a trust. The trust owns 100% of a foreign corporation, which owns a securities account Example 4 U.S. Person is entitled to 25% of the profits from a foreign partnership. The partnership owns a securities account Example 5 A U.S. Person invests in a non- U.S. hedge fund. 10% 25% > 1% Foreign Corporation Foreign Grantor Trust Foreign Part ship Hedge Fund 100% Foreign Corporation
FATCA! - February 8, 2012:! - The UK Government issued a joint statement with the Governments of France, Germany, Italy, Spain and the United States, setting out an agreed approach to the US FATCA legislation, which aims to combat cross-border tax evasion.! - There will be an intergovernmental approach to information exchange, and addressing compliance burdens on financial institutions affected by FATCA.! - The Government is committed to tackling tax evasion, wherever it takes place. This joint statement builds on the close cooperation of all the countries involved, and of the European Commission, in tackling cross-border tax evasion and provides a practical way forward that should reduce the burdens on the financial sector. David Gauke, Exchequer Secretary to the Treasury.!
How to disclose today! Is ʻQuiet filingʼ still an alternative?! UK ethical rules require disclosure if you are an intermediary! Voluntary disclosure offers potential limitation of cost! Quiet filers run risk of detection by IRS and imposition of potentially higher penalties (including risk of criminal prosecution)! Active whistleblower initiatives exist! More information will be available to the IRS when FATCA becomes effective!
New for 2012 Form 8938 Where to Disclose? Form 8938 and/or FBAR? - 2011 Filings! Published January 19, 2012 by AICPA. This table helps one identify which foreign financial assets and accounts must be disclosed for 2011 on: Form 8938, Statement of Specified Foreign Financial Assets; Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (commonly referred to as FBAR); or both. The table is based on information and guidance available as of January 19, 2012.!
Tax Planning 2012! $5 million life time gift exemption - may be reduced to $1mm in 2013 if Congress doesn't act! $139,000 transfers to non-us Spouse! PFICs - if loss consider selling now! Consider Investments to utilise excess Foreign Tax Credits! - EIS! - Pensions!
PFICs watch out! Any foreign corporation that has:! - 75% or more of gross income which consists of passive income! - 50% or more of the companyʼs assets produce, or are held for the production of, passive income! - 3 alternative sets of income inclusion rules apply to US persons invested in PFICs! - Form 8621 must be filed for each PFIC owned!
British Boy Marries American Girl Planning before the wedding! Separate property - avoid Jointly owned assets! Personal Residence - in name of non-us Spouse! Non-Sterling Mortgages - US person exposed to tax on FX gain! Collective Investment funds - in name of non-us Spouse! If "equalising" estates US person should own! - Individual Stocks/Bond! - Real Estate!
Final words! The IRS are targeting Americans overseas! Stay compliant! FATCA will disclose personal and financial details for most US persons with non-us assets directly to the IRS from 2014! US Persons need to avoid ʻbadʼ non-us tax friendly structures and investments! Being non-us compliant with US tax laws from January 2014 could have serious consequences for US persons and their families!
The US Tax & Financial Services Group London US Tax & Financial Services Ltd " Magdalen House 136 Tooley Street London SE1 2TU United Kingdom Geneva US Tax & Financial Services, SARL Boulevard Helvétique 36 (entrance rue du Petit-Senn) CH-1207Geneva Switzerland Zurich US Tax & Financial Services, SARL Löwenstrasse 28 PO Box 1367 CH-8021 Zurich Switzerland Tel Aviv US Tax & Financial Services Middle East, GmbH 5th Floor 4 Berkowitz Street Tel Aviv 64238 Israel T: +44 (0) 20 7357 8220 F: +44 (0) 20 7357 8225 T: +41 (0) 22 700 25 00 F: +41 (0) 22 700 25 26 T: +41 (0) 44 387 80 70 F: +41 (0) 44 387 80 79 T: +41 (0) 44 387 80 70 F: +41 (0) 44 387 80 79 US Individual Tax David Treitel d.treitel@ustaxonline.com Helena Turner h.turner@ustaxonline.com For all enquiries Gregory Dean g.dean@ustaxonline.ch For all enquiries Paul Bolland p.bolland@ustaxonline.ch For all enquiries Leonard Tuber l.tuber@ustaxonline.co.il Corporate Tax Bradley Albin b.albin@ustaxonline.com Estates and Trusts Andrew Aldridge a.aldridge@ustaxonline.com!!! www.ustaxonline.com Under applicable US regulations (Circular 230), we are required to inform you that, unless we specifically state otherwise, any tax advice in this communication (and in any attachments to it) was not intended or written to be used, and cannot be used, for the purpose of: (i) avoiding tax-related penalties; or (ii) promoting, marketing or recommending to another party any matter(s) addressed herein