The level of concern among Americans seems to be growing as
the FATCA implementation deadline draws closer and more people are becoming
more aware of the implications and possible consequences of this absurd
legislation.
The first consequence has to do with the 30% withholding
when wiring funds to a non-U.S. bank that isn't compliant with the new IRS
rules. At first, I think most people dismissed this pending situation when they
heard of it, if they heard of it, thinking it was something that would affect
"the rich." But that's not the reality. The reality is that the
retired police officer looking to buy his dream home on the beach in Nicaragua,
say, or Belize will get hit with the 30% withholding if he sends the funds to
purchase that house to a non-compliant bank.
The reality could even be that a
schoolteacher, to take another example, having saved for years for a
once-in-a-lifetime vacation in Europe might have to save 30% more than planned
to allow for the 30% withholding every time he (or she) withdraws money from an
ATM while traveling on the Continent if that ATM is owned by a non-compliant
bank.
The truth is, no one is sure at this point of all the
practical implications. But we all need to understand that they definitely will
not be restricted to the rich.
Meanwhile, other parts of FATCA have already started kicking
in ...specifically the requirement for filing the new Form 8938 if you meet the
foreign financial assets threshold. That threshold is US$50,000 for U.S.
persons living in the United States and US$200,000 for U.S. persons living
outside the United States.
Readers began writing in with questions about Form 8938 just
before the April 17 personal tax return filing deadline in the States. Now I'm
getting questions from people who filed extensions. The extension deadline is
Oct. 15, still months away, but confusion and concern are growing. I'd say
that's just what the IRS was hoping for.
Penalties for not filing or mis-filing Form 8938 aren't as
onerous as the penalties for not filing the Foreign Bank Account Report (FBAR),
yet many are more concerned about the 8938 because it's less straightforward,
meaning there's more room for getting it wrong. Very broadly speaking, the idea
is that you're meant to report foreign financial assets that aren't reported
elsewhere. Complete Form 5741 for your offshore corporation, and you don't have
to report it on Form 8938. However, if you hold the share certificates of, say,
a Canadian mining company outside your brokerage account, then you have to
report that on Form 8938 if you meet the threshold.
Shares of a foreign company are easy to classify as a
foreign financial asset. However, other assets may not be as cut and dry. Gold
certificates qualify, as they are financial assets rather than hard
assets--because they are paper. What about physical gold held in a vault where
your ownership is certified with a document? The experts disagree. Some say
it's physical gold and therefore non-reportable, while others say the
third-party contract for storing the gold and the certificate of ownership make
it a reportable financial asset.
Then there is foreign currency. Hold it in a bank account,
and that is reportable on both the FBAR and Form 8938 if you meet the
requirements. However, what if you're holding €10,000 in cash...or even €100 in
cash for taxi fare when you take your next trip to Europe and don't want to
deal with an ATM at the airport? Does the IRS really want you to list out the
value of the contents of the bowl of foreign change sitting on your bookshelf?
After all, foreign currency is a foreign financial asset...
The more you think this through, the more questions you
have. And, right now, no one has certain answers. The only certainty is if you
want to protect yourself from FATCA you will need a second
passport/citizenship. The Dominican Republic offers the most economical one
around for $24,900. Write us for details: BankerTrust@gmail.com
