Saturday, April 28, 2012

The Death of All Banking Freedom?

By Wendy McElroy
Future of Freedom Foundation
Tuesday, April 24, 2012

Last week, the Internal Revenue Service (IRS) extended its reach and tightened its grip on every cent Americans earn or try to preserve anywhere in the world. The final regulations of the Foreign Account Tax Compliance Act (FATCA) were announced.

Enacted in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, FATCA seeks to have foreign financial institutions report on accounts held by any American living in the United States or abroad. You can take your money and run, but you cannot hide from an IRS that functions as a taxation clearing house to the world. If you have never lived in the United States but have American parents, then you will still fall under the jurisdiction of the IRS and the Department of the Treasury. Only the costly and cumbersome act of renouncing American citizenship can provide protection.

Americans are already required by tax law to disclose any foreign accounts that total more than $10,000; that controversial requirement is called the Report of Foreign Bank and Financial Accounts, or FBAR. (FATCA broadens the sort of assets that must be reported and raises the reporting requirement to $50,000 for an individual or $100,000 for a couple.) But using FBAR to rake in money that has fled to more friendly environs relies too much on the voluntary compliance of foreign-account holders.

FATCA is supposed to bypass this need and supplement FBAR. And it is expected to do so by January 1, 2014, when the final regulations are slated to go into effect.

The final regulations

Law professor Alan Appel provides an example of one "incentive" that will be applied to financial institutions. Appel explains,
"These foreign banks, which are called foreign financial institutions, or FFIs, and also foreign entities that are not banks — called non-financial foreign entities, or NFFEs [for example securities brokerages] — have to enter into a compliance agreement with the IRS starting Jan. 1, 2013 … they’ll agree to basically [disclose] the names, Social Security numbers and account balances of U.S. [account holders] every year. … And if they don’t enter into this agreement and they invest in U.S. stocks or securities, or have any U.S. source income, then there’s going to be a 30 percent withholding tax on all payments, including interest, rents, royalties, and things like that."
Read the rest of the article.

For further reading:
"Tax time pushes some Americans to take a hike", Atossa Araxia Abrahamian, Reuters, April 16, 2012
"Law to Find Tax Evaders Denounced", David Jolly and Brian Knowlton, The New York Times, December 26, 2011
"Should You File FBAR For The First Time?", Robert Wood, Forbes, June 14, 2011

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