FATCA – the full employment act for the tax compliance industry…
Bloomberg Tax is reporting a nearly 50% increase in the number of Enrolled Agents with foreign addresses. The article is troubling on many levels, starting with the title: “U.S. Tax-Dodging Crackdown Overseas Brings Foreign-Adviser Surge.” Apparently, the editorial team at Bloomberg has different ideas, because today they published “Stop Treating American Expats Like Tax Cheats.”
FATCA is truly the full-employment act for the tax compliance profession. Below the fold, I’ll examine the following issues raised by the increase in US tax compliance professionals outside of the US:
Has the IRS really “gone global”?
What support does the IRS provide international taxpayers?
On 15 October 2019, the IRS amended its FATCA FAQs (aimed at Foreign Financial Institutions – FFIs) by adding Q3 to the questions on Reporting. The new Q3 outlines the procedures that FFIs subject to a Model 1 IGA will be subject to in the event that they report accounts with missing or invalid identification numbers (SSNs). This new question is clearly aimed at easing the anxiety of Accidental Americans at the expiry of Notice 2017-46, which allowed FFIs to report date of birth instead of SSN on existing accounts if the FFI was unable to obtain an SSN.
This is significant because there have been many newsoutletsreporting that a large number of bank accounts (especially in Europe) would be closed at the end of 2019. The problem arises because there are many US citizens who have always lived outside of the US and may not have a Social Security number. Many of these individuals don’t even identify as Americans and don’t understand why they must go through the bureaucratic hassle of obtaining an SSN (not easy if you’re an adult and living outside the US). In September, the IRS made it possible for these individuals to renounce their US citizenship and follow US tax law without obtaining an SSN. However, the cost of renouncing (USD2,350 per person) is prohibitive for many, and the cost of having US tax returns prepared professionally can also be excessive.
On Friday 6 September, the IRS announced new “Relief Procedures for Certain Former Citizens.” These procedures mirror the current Streamlined Offshore Filing Procedures with some differences that might be attractive to some who have renounced or wish to renounce their US citizenship. Taken in conjunction with other recent IRS announcements, this new procedure is a “carrot” to encourage compliance before the IRS applies the “stick” of recently announced compliance campaigns. However, this begs the question of why the IRS would want to encourage compliance among non-citizens whose US tax liability would be dwarfed by the combination of the cost to the IRS of processing their returns and the cost to the individual of having the returns prepared.
The transition tax is the provision in the tax reform bill that concerned us so much when it was introduced that we posted a Call to Action! In short, when applied to an Australian-resident US taxpayer, the transition tax asserts the right of the US to reach inside an Australian corporation and tax previously earned active business income just because a majority of the company is owned by “US Shareholders”. This is a major departure from prior law, and calendar-year taxpayers were given not much more than a week from the date the law was signed to the end of the tax year in which this new tax would be applied – certainly not enough time to understand the new law, let alone plan to avoid the inherent double taxation. Furthermore, in all of the hearings on the bill, not one Representative or Senator mentioned anything about the applicability of this provision to corporations owned by tax-residents of other countries, for whom the idea of “repatriating” profits to the U.S. is not only absurd, but also a drain on the economy of the country they call home.
In this series we’ve discussed how Australian investments impact a US tax return. To finish up, this post will discuss the pros and cons of investing directly in the US as well as a quick discussion of the types of records you should be keeping to assist with US tax preparation.
This is the final installment in our series of posts discussing the ways US tax laws constrain the investment choices of US taxpayers living in Australia. This post covers investing in the US and what records should be kept. These are the areas we have covered in all five posts in this series:
This series (and everything on this website) is general information only. I am not a lawyer, tax professional, or financial planner, just someone who has learned about US tax and wants to pass on general knowledge. Many areas of tax law are interdependent, so changes in one area may have unintended consequences in another. You should consult a professional who can consider your own personal circumstances before taking any action. Continue reading “Investment Constraints 5: Final Thoughts”
60% of Australians own equity based investments (listed or non-listed) outside of institutional superannuation accounts, and 37% of Australians own listed shares (2017 ASX Australian Investor Study). There are two main ways to invest in equity – purchase shares directly on the share market or purchase a slice of a portfolio managed by a professional portfolio manager. For Australian investors who are claimed by the US, the US tax implications of these two choices are quite different.
This is the third instalment in our series of posts discussing the ways US tax laws constrain the investment choices of US taxpayers living in Australia. These are the areas we will be covering:
This series (and everything on this website) is general information only. I am not a lawyer, tax professional, or financial planner, just someone who has learned about US tax and wants to pass on general knowledge. Many areas of tax law are interdependent, so changes in one area may have unintended consequences in another. You should consult a professional who can consider your own personal circumstances before taking any action. Continue reading “Investment Constraints 3: Equity”
This series (and everything on this website) is general information only. I am not a lawyer, tax professional, or financial planner, just someone who has learned about US tax and wants to pass on general knowledge. Many areas of tax law are interdependent, so changes in one area may have unintended consequences in another. You should consult a professional who can consider your own personal circumstances before taking any action. Continue reading “Investment Constraints 2: Real Property”
Have you opened a bank or investment account lately? Were you asked about other citizenships? Place of birth? Since mid-2014 Australian financial institutions have been ferreting out US Persons. At most institutions, every new account holder is asked these questions. And, if you are found to be a US Person, you must complete a form W-9 (or equivalent) disclosing your US connection and Social Security Number. This data will be sent to the ATO, who will forward it on to the IRS.
Think about that.
Private Australian financial information of Australian citizens and permanent residents is being sent to a foreign government.
Just over a week ago, I received a message through this website from someone who had submitted an FOI request to the ATO. “Sam” expected that one of his accounts had been reported because the bank had identified him as a US Person and the balance was above the bank’s reporting threshold. The response from the ATO puzzled Sam, and it puzzled me as well. The ATO response stated that they needed to consult with a “foreign government” about whether Sam’s FATCA records were exempt from FOI under Section 33 of the FOI Act: Continue reading “FOI Take 2”
Walter B. Wriston (former CEO of Citicorp): “All the Congress, all the accountants and tax lawyers, all the judges, and a convention of wizards all cannot tell for sure what the income tax law says.”
Applying US tax law to “foreign” legal structures is problematic.1 This is one of the great frustrations of trying to comply with the US system of citizenship based taxation (and one of the reasons why this extraterritorial application of US law should be carefully considered by all countries who negotiate tax treaties with the US). Inevitably there will be differences of opinion as to how US law applies to particular foreign income or taxes – and these differences will lead to different US tax treatment of the same or similar items. There may be no single “right” answer, and we (or the tax professional we have hired) will have to choose how to interpret US tax law to determine our US tax liability on our foreign (home) income. Understanding how our local law meshes with the structures defined in the US tax code is the first step.
In Australia, we have two advantages relative to much of the rest of the world (especially those which are not part of the Commonwealth). First, our laws are written in English. While there are several Aussie colloquialisms that differ in meaning from American English, our laws and other formal writing are written in language that is mostly the same as US English (with a few extra vowels here and there, and the occasional “zed” that has been replaced by an “s”). Second, our legal system is derived from the British system, so many of the underlying principles are at least similar between the two countries. Even so, there are differences.