It’s worse than it was, but it is still a good time to expatriate

It costs $680 for a Certificate of Naturalization in the US and $2,350 for a Certificate of Loss of Nationality. 
The State Department complains of how much work it is to handle a renunciation case. The fact that much of this work might in fact be self-inflicted seems to escape their grasp.
But the bureaucrats are short-sighted. A random dual-U.S./Canadian person might be more inclined to assert a relinquishment case to backdate the termination of citizenship. Note that the $2,350 fee only applies to people renouncing citizenship. It does not apply to people who have U.S. citizenship terminated by one of the other methods.
I predict that the State Department will have more renunciations occur because of this fee hike.
I also predict that the case load at the State Department to adjudicate mere “relinquishment” will increase. In fact, it will balloon. The State Department’s work load will get worse not better. And the State Department doesn’t charge a user fee for this work, so they will have to eat the entire amount of the overhead. Typical argument: “When I acquired Canadian citizenship in 19xx, I did so with the intention of giving up my U.S. citizenship and in fact I thought that was what happened automatically.” I’ve seen it succeed.
You’ve heard the phrase “Two heads are better than one”? Not always. Bureaucracy is an exercise in subtractive intelligence.

• 1. The IRS has still not published its Regulations interpreting Section 877A and Section 2801. Whenever the IRS puts something on paper, it is generally Very Bad for Carbon-Based Biped Life Forms. Get out before they write stricter rules.
• 2. Congress is full of it. Sooner or later the United States will start to control your ability to exit the country. When I travel, every other country tracks me going in and going out. When I leave the United States with my U.S. passport, I don’t get tracked . Sooner or later you will present your passport when you get on a plane to leave the USA. And when that happens, the IRS will be there to ensure you have paid up your taxes. Remember in 2012 when they tried to pass a law saying if the IRS thought that maybe you might owe $50,000 or more they could cancel your passport? Yeah. That.
• 3. Congress is full of it. Remember when the Facebook guy (Saverin) expatriated and Carl Schumer ranted? Yeah. More taxes on expatriates.
• 4. Congress is full of it. We still have on the books a mid-1990s law that says that expatriates can be barred from re-entry into the United States. Expect this to come up again.

The State Department created the problem by over complicating the renunciation process, and now they are charging people to pay for the “make work” that they created.
It’s like the Chinese bullet fee.

 The Cost of Cutting Ties with Uncle Sam Soar, Tim Harper, Toronto Star.
 http://www.kentucky.com/2014/08/31/3405040_us-tax-system-driving-away-companies.html?rh=1
 http://hodgen.com/blog/

another summary : IRS Changes Streamlined OVDP Reducing FBAR Penalty Exposure

Journal of Tax Practice & Procedure
June-July, 2014

 http://taxlitigator.com/wp-content/uploads/2014/08/IRS_Changes.pdf

No surprise here unfortunately : see a public comment about the transition process from OVDP to SDOP.....

"Just spent 2 hours arguing with my agent about the transition process from OVDP to SDOP. He said once he got the paper work he could get it approved or declined in less than 3 days. When I asked him how could the IRS possibly do something this quickly, when it takes him weeks to answer a simple e-mail from me, he laughed. He laughed because the IRS are just turning everyone down, forcing them to take their chances in opt out. So you spend time and money completing the certification under threat of perjury and all along they had no intention of approving you, and now they got a signed certification that they can try to use against you if they find anything out of order.
Using the fear factor once again. My agent knows I indicated that I had foreign accounts in my 1040 and ticked the box yes that I had foreign accounts, but I did not file FBARs. The potential for them to get much more than 5% through the 25% miscellenous penalty or FBAR penalties is requiring them to automatically deny the transition request, and let me take my chances. I will ultimately win, however they will keep me in legal and accounting expenses for the next 2 years. I have already been in the program 2 years and have not had a 906 issued yet. My lawyer is well connected and he says that everyone requesting transition is being denied. The transition option is a complete joke and the agents are afraid to grant it in case they lose a big fish."

Keep in mind that the streamlined rules were designed to give taxpayers the alternative to joining OVDP and opting out where the nonwillful taxpayers would get a better result. The denial of transition does not mean that the IRS has made a determination of willfulness.

The Fine Line between Tax Evasion and Tax Avoidance

Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

~ Judge Learned Hand in Helvering v. Gregory, 69 F.2d 809, 810-11 (2d Cir. 1934).

Tax resistance has existed throughout history – it has inspired revolutions and caused the downfall of empires.  The more common manifestation of tax resistance is protecting your wealth through tax avoidance,a legal and strategic tax method to maximize your income. 

Reporting Gifts and Inheritances Received from Abroad

Many people make the mistake of failing to report gifts or bequests from abroad on tax returns, because they do not think gifts are “income”. This can be a costly mistake, however, subjecting the recipient to hefty tax penalties which could easily have been avoided with some qualified tax advice.

The little publicized tax rule with big financial consequences

The tax rules regarding gifts and inheritances received from individuals outside the U.S. aren’t well-publicized . If you are a U.S. Citizen or resident, you are not only responsible for reporting your foreign income, accounts and overseas property on your annual tax return -- you must also report to the IRS if you receive:

FBAR e-filing: violates Taxpayer Bill of Rights, challengeable under Haar

It does not work on a mac at all, and it does not work on a PC if you have Adobe Acrobat installed (the user must uninstall and use adobe reader instead). So now in addition to frightening people by forcing them to register themselves for monitoring by "Financial Crimes Enforcement," making them feel like criminals just by visiting the website, the US Treasury is all about making sure the user encounters error after error, frustration without end, with no alternative because e-filing is required.

IRS Unveils More User Friendly Forms For Streamlined Procedures

The IRS has just recently updated the Streamlined Procedure forms for both its “foreign” and “domestic” procedures. All of the information can now be typed directly into the fields. Even the statement of facts can be cut and pasted directly onto the Form. This should help simplify the process.

The forms can be found by clicking on the links below:
• Form 14653–Certification by U.S. Persons Residing Outside of the United States for Streamlined Foreign Offshore Procedures
• Form 14654–Certification by U.S. Persons Residing in the United States for Streamlined Domestic Offshore Procedures.

A very basic question came to mind. Both OVDP and SDOP are voluntary programs. Given the voluntary nature of these programs,doing a QD will bring the taxpayer into compliance. Correct?

IRS asks a NW taxpayer to enter SDOP and pay 5% as a penalty. In return what is the taxpayer getting for entering the program versus if the same taxpayer had done a QD?
In other words, what is the penalty buying the taxpayer?
A QD will bring a taxpayer in compliance. However, the programs offered by the IRS gives some certainty. Even though streamlined submissions are still subject to audit, I doubt that many will be audited.
The QD is more uncertain. The IRS says that it is looking for QDs that report of foreign bank income and change the Schedule B foreign bank question to yes and for filings of delinquent or amended FBARs. So, the chances of audit may be greater.
But for most taxpayers who are nonwillful, their FBAR penalties are likely not going to be great if audited, so a QD might be the way to go, particularly if they are willing to accept a possible higher risk of audit.

To put US$2,350 in perspective: As long as 3 years ago people were predicting it would become more difficult to renounce under these current conditions.

This could be why the consulates slowed down their renunciation bookings — to take advantage of the up-coming price increase.
1. slowing down appointments
2. 2times fee raising
3. making it more difficult all around to relinquish or renounce
Please keep in mind  that the fee should be collected before
conducting the ceremony and administering the oath. If a renunciation is undertaken but not approved by the Department, the fee is not refundable !!
State Department’s justification is pure nonsense. They are simply taking advantage of the increase in demand to renounce US citizenship. As the predicted price of future tax compliance goes up, the demand for CLNs will go up as people do the math, turn down the thermostat, tighten their belts, and figure out they can afford the CLN but cannot afford future compliance.  State will respond to increasing CLN demand by making procedures more onerous, which will raise their own costs for CLN issuance; they will certainly pass those costs along to renunciants. CLNs are a new growth commodity and just beginning to enter a super cycle and I would not be surprised to see counterfeit CLNs start to pop up.

Why is there still no fee for relinquishment, considering that they are much more costly to process than renunciations?

That’s probably next. Relinquishment itself may even remain technically free, but the paperwork processing fee if you want a CLN will be $2,350.
http://www.nostate.com/4089/at-long-last/

A new study by the National Bureau of Economic Research shows 50% of Americans would struggle to come up with $2,000 in a pinch, for example in the event of an unanticipated car or home repair, a large medical bill or legal expenses. Roughly 28% said they “certainly” would not be able to cope with an unexpected $2,000 bill if they had to come up with the money in 30 days, and another 22% said they “probably” would not be to able to cope.

So what are you supposed to do if you are like those 50% of people and cannot afford to renounce, cannot afford the expense to relocate yourself and your non-U.S.-citizen spouse to the U.S., and cannot afford the expense for an accountant to file 3520s for you on a mandatory retirement account you cannot close?
http://money.cnn.com/2011/05/24/news/economy/americans_lack_emergency_funds/index.htm
http://m.state.gov/md231128.htm

The Lois Lerner cover-up has reached a level of absurdity of a Mr. Bean show.

Lois Lerner’s dog has not only eaten her e-mails and the emails of others who were connected with targeting Tea Party groups, but it has now surfaced that her dog had even managed to eat her Blackberry as well. Imagine that?

http://www.foxnews.com/politics/2014/08/27/lois-lerner-blackberry-deliberately-destroyed-after-start-congressional-probe/

State Department to hike renunciation fees 422% to US$2,350 effective September 12; says “no public benefit” in respecting human right to change nationality

A CLN is 17x more valuable than a US passport?
Critics have noted that this fee is over twenty times the average fee imposed in other high-income countries. The State Department claims this hike is all about demand on its time, manpower and services.
And the narrative that will come out of this fee raise is not likely to focus on "cost recovery" at US consulates around the world but on what is going to be perceived as a punitive act on the part of the US government.  It looks like they are so embarrassed by the renunciation numbers and the lines to renounce at the US consulates that they are looking for ways to reduce or slow down the demand. Think about that.  Has the state of US citizenship in the world really come to the point where the US government thinks that Americans have to be actively discouraged from renouncing?  That is what people are likely to take away from this news.  That the United States is trying to keep it's citizens captive by finding quasi-legal methods to interfere with their right to expatriate under international law.


DiploPundit points to a State Department interim rule just placed on public inspection for printing in tomorrow’s Federal Register, which raises the fee for renunciation of U.S. citizenship (but apparently not relinquishment) to US$2,350, more than twenty times the average level in other high-income countries. As they state: 
“CA [Consular Affairs] will publish a proposed rule on Thursday in the Federal Register raising the fee for renunciation of citizenship from $450 to $2,350. This will not be popular. Fee based on annual fee study and lack of common sense.”

The Universal Declaration of Human Rights states that “No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality”, while the Expatriation Act of 1868 says that renunciation of citizenship is “a natural and inherent right of all people” and that “any declaration, instruction, opinion, order, or decision of any officers of this government which restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government”.
As of press time, the State Department has not yet commented on whether it sees “public benefit” in other human rights such as freedom of election or freedom of marriage, or whether anyone seriously believes that charging people a month’s salary to get a ballot paper or a marriage certificate would not restrict or impair those rights.
Because this fee hike apparently does not apply to relinquishments, ex-Americans who naturalize in most other countries will still be able to obtain a Certificate of Loss of Nationality from the U.S. government for no more than the cost of taking a day off work and driving or flying halfway across the country to the nearest consulate which isn’t backed up for months with renunciation appointments. (“Most other countries” means those which allow dual citizenship, like Canada and France, or those which forbid dual citizenship but allow new citizens to submit proof of loss of their former citizenship after the naturalisation ceremony, like Japan.)

IRS Still Struggling With Tax Treatment Of Immigrants, Changes Rules Again

Tax refund fraud costs taxpayers billions of dollars each year. In an effort to curb fraud, the IRS has made a number of  changes over the past few years, including new controls over Individual Taxpayer Identification Numbers (ITINs) which took effect in 2013. Those rules, however, are changing again.
ITINs are numbers assigned to taxpayers who are not eligible to obtain Social Security Numbers. Social Security Numbers are generally assigned to U.S. citizens and those noncitizens who are authorized to work in the United States by the Department of Homeland Security . Social Security Numbers and ITINs are intended to be used only for tax and benefits purposes but as banks, schools and insurance companies use them as identification numbers, more and more folks want them for non-tax purposes: only a quarter of ITINs assigned since the program began in 1996 have been used to file tax returns.

European states may bring in their own version of FATCA

Some bankers have said that European states are expected to follow the example of the United States and ask their citizens abroad to disclose their bank accounts to European financial authorities in a bid to combat tax evasion.

http://www.dailystar.com.lb/Business/Local/2014/Aug-27/268584-european-states-may-bring-in-their-own-version-of-fatca.ashx#axzz3BaLer21W

Since 2008 IRS offshore crusades added 100,000 ordinary new filers who don’t owe any U.S. tax

Via TaxProf Blog, we learn that the IRS has released its annual report on Individual Income Tax Returns, 2012. Page 9 has statistics on Foreign Earned Income Exclusion usage, from which we can calculate the average amount of the FEIE per return:

	2008	2009	2010	2011	2012
Number of returns w/FEIE	371,885	396,405	415,519	445,276	475,386
		+6.59%	+4.82%	+7.16%	+6.76%
Total amount of excluded income (constant 1990 US$ million)	13,899	14,907	15,482	16,305	16,866
		+7.25%	+3.86%	+5.31%	+3.44%
Average FEIE per return (constant 1990 US$)	37,374	37,604	37,258	36,618	35,478
		+0.62%	-0.92%	-1.72%	-3.11%

Here’s another way of looking at these numbers. Assume that all of the FEIE users in 2008 continued to be FEIE users in 2012 (or equivalently, that they were replaced by similar filers or married-filing-jointly couples), and that over that period they suffered the same drop of 0.96% in earned income (in constant 1990 US$) that all U.S. returns demonstrated on average during that period. What would the average FEIE for each of the 100,000 marginal new filers have to be in order to fit with the above figures?
Answer (again, in constant 1990 US$): US$29,709, almost exactly the same as the average earned income across all U.S tax returns.

Consular Reports of Birth Abroad

U.S. citizens abroad can go to the local consulate in the host country to report the birth of a new US citizen (a child born abroad to parent(s) who fulfill the requirements to pass along their U.S. citizenship to their offspring).  The purpose of such a pilgrimage to the local consulate is to get a determination that the child was indeed born an American citizen and acquire the documentation necessary to, say, apply for a US passport.

But here's the kicker - this is entirely voluntary.  No American parent abroad has to make such a report and furthermore reporting or not reporting the birth makes no difference whatsoever in the status of that child:  if his parent(s) fulfilled the requirements for passing along US citizenship then that child is a US citizen by birth, albeit an undocumented one.  Nothing prevents that child from claiming US birthright citizenship later in life.  It's just a matter of gathering the right paperwork.

So put yourself in the position of an American abroad with a new baby.  Do you report the birth and get the passport/social security number right away? Or do you wait until the child can make up his or her own mind whether he wishes to claim US citizenship or not?

There is anecdotal evidence that the latter is becoming more and more common and that would make sense.  But is it true?  No one knows.

Both of these things should be looked into by an intrepid, inquisitive soul in order to get a much better perspective on the state of US citizenship today.  A simple Freedom of Information Act request should suffice.

(Before I forget, there are rumours that the current US citizenship renunciation fee will be raised from 450 USD to over 1,500 USD , the DOS stated that the current $450 is less than 25% of their actual costs to handle an expatriation case and they probably want to recover the remainder given the volume. )  

And the American Chamber of Commerce notes that it is a growth industry worth exploring from the business perspective;
“……Here’s a hot tip for accountants and tax attorneys: now is a good time to develop specialized expertise in advising clients who may be seeking to expatriate from the United States. That demographic looks more and more like a real growth opportunity…….”
from;
‘Exit Strategy: FATCA Tax Law Keeps Pushing Americans To Give Up Citizenship’
— Written by
David Kinkade
https://www.uschamber.com/blog/exit-strategy-fatca-tax-law-keeps-pushing-americans-give-citizenship

Renunciation and Relinquishment: What are the differences? Is there a difference?

We often use separate terms for “renunciation” and “relinquishment” since there are some notable differences between renunciation and the other methods of terminating one US citizenship. However, renunciation is actually one of the 7 methods of relinquishment, as set out in Immigration and Nationalities Act, s. 349(a).  This post explains some of the similarities and differences.

Not a citizen, never lived or worked in the US? IRS will still keep your money.

Last Wednesday, Les blogged about the curious case of Montiel v. US, which highlighted the confusing area of statutes of limitations on refunds for non-resident aliens.  In his post, he mentioned the Boeri case, which we highlighted in a SumOp months before, and Carl Smith referenced in a guest post on the Volpicelli “jurisdiction” case under Section 6532(c).  The question is whether or not Section 6511(b) look back period, or other similar statutory requirements, is jurisdictional.  The second issue is the deemed payment date of withholdings for non-resident aliens under Section 6511(b)(2)(A).  Here is the post, slightly modified:
In December, the Supreme Court denied cert in Boeri v. United States, foreclosing any potential judicial remedy in an unfortunate tax case for Mr. Boeri.  As discussed below, the Service was following the statute regarding payments and refund requests, and there was not an easy way for the courts to hold for Mr. Boeri, but the facts scream for some type of equitable relief.  Although the case does not include any new law, it does present an opportunity to cover the impact of the strict construction of the look back rules under Section 6511, especially as they pertain to a foreigner who never worked or resided in the United States.
 

The facts of the case are as follows, and I have lifted much of this from the Federal Circuit Court of Appeals holding.  Mr. Boeri was an Italian citizen who was never a citizen of the United States, never worked in the United States, and never was a resident of the United States. Mr. Boeri was employed by GTE and Verizon for over thirty five years (located in Italy, Brazil, Argentina, and the Dominican Republic).  In 2003, Mr. Boeri accepted a voluntary buy out, and received close to $250,000 in two payments in March and August of 2004.  In those distributions, Verizon withheld around $70,500 in US income tax withholdings, Social Security tax, and Medicare Tax.  There is no dispute that Mr. Boeri was not originally liable for those taxes.  In March of 2009, Mr. Boeri filed non-resident income tax returns for 2004, seeking a refund of the taxes withheld by Verizon…And you can imagine where this was headed.
The Service responded and indicated the refund request was not timely and should have been made within 3 years from April 15, 2005 pursuant to Section 6511(b)(2)(A), the so called look back rule.  Section 6511(b) provides, in pertinent part:

How Likely Is The IRS To Audit Me If I Quietly Disclose My Previously Unreported Offshore Account Pursuant To An Amended Return And A Delinquent FBAR?

What flags might trigger an audit? Failing to report taxable income is at the top of the list. A close second is “breaking the rules on foreign bank accounts.” Hunting undisclosed offshore accounts remains an IRS priority, a fact supported by its staffing trends. For example, in 2001, the IRS had 13 Special Agents in its international operations unit, and none in what it calls the “global high wealth” unit. But by 2011, there were 71 revenue agents assigned to global high wealth and 856 to international operations.
With respect to unreportable income, the IRS has taken great pains to know what the median average wage is for the job you have. If your income is out-of-proportion to how much other people in the same industry earn, the IRS will want to know why.
One question that you might be asking yourself is whether an audit could turn criminal. That possibility always exists. After the civil agent has worked on your case, it can take one of two directions. First, the agent may not perceive your case as having criminal potential. In that case, he will close the audit making such civil recommendations as he thinks appropriate.
To the extent that the agent proposes a change, you have two choices. First, you can agree, thereby paying more taxes, interest, and/or penalties. Or second, you can disagree. If you disagree, you can appeal or enter into mediation with the IRS.
Second, the agent may determine that your case has sufficient criminal potential that it should be referred to Criminal Investigation. This can happen anytime during the audit process, but it often happens toward the end after the agent consults with an IRS fraud coordinator.
http://www.deblislaw.com/will-the-irs-audit-me-if-i-quietly-disclose-my-previously-unreported-offshore-account-on-an-amended-return-and-a-delinquent-fbar.html

India Quietly Readies for FATCA

Officially, India has not signed an agreement to participate or enforce the U.S. FATCA legislation. Short for the Foreign Account Tax Compliance Act, FATCA requires foreign banks to become the eyes and ears for the IRS. That means beginning this year, offshore banks must examine their account base and next year, report to the IRS accounts with ties to the United States. Banks that do not comply face stiff sanctions.

Without an agreement, Indian banks could find themselves in jeopardy. India, however, appears to be moving towards compliance. In late June, the Reserve Bank of India notified all Indian banks that India had agreed to the basic terms of FATCA.

Although the Indian government says it will comply, implementation will be difficult. Part of the problem is that Indian tax returns don’t already capture all of the information necessary for FATCA.

No green card? No exit tax problem

Question : Will years, which a tax payer spend in the U.S. with a "normal" visa (not a green card) count as years when determining long term residency? For example: a taxpayer lives in the US with several subsequent regular visa for 10 years, then finally gets his greencard stays another 2 years and then leaves and files I-407 in the same year. Was he a long term resident and his he now a covered expatriate?

Short answer: this person will not be a "long-term resident" for exit tax purposes and cannot be a "covered expatriate", even if he is fabulously wealthy, pays millions in U.S. tax every year, and never filed a tax return. 

The PayPal requirements appear to be pointed at US resident users who withdraw money in USD

https://www.paypal.com/au/webapps/mpp/irs-reporting-requirements:
As a result of recent changes to US legislation, PayPal has reporting obligations to the US tax authority, the Internal Revenue Service (IRS). We are required to identify customers with more than a certain transaction and payment volume and establish if they are US persons or entities subject to US taxes. Information about customers that are US persons or entities must then be provided to the IRS. PayPal Australia, along with all other US based payment processing companies (such as international banks), is required under this legislation to confirm whether account holders that meet the following criteria are US persons or entities subject to US taxes:
$20,000 USD in gross payment volume from sales of goods or services in a single calendar year AND
200 payments for goods or services in the same calendar year AND
Have made at least one withdrawal from their account in US dollars. PayPal will be asking customers approaching these levels to confirm if they are a US person or entity.

Are OVDP taxpayers seeking transitional treatment in the streamlined procedures going to be held to a different “non-willful” standard than taxpayers entering the streamlined procedures directly?

The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are more "non-willful" than not. The issue is whether the IRS will agree.
The certification requires that the taxpayer “provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”

The ability to prove something that simply did not exist is difficult, at best. How does a taxpayer actually provide “specific reasons” in their certification confirming that they did not know of the FBAR filing requirements? Will the government discount statements by the taxpayer attempting to disprove knowledge as self-serving unless accompanied by objective supporting evidence? What objective evidence might exist to appropriately demonstrate a lack of personal knowledge by the taxpayer about their foreign reporting requirements?

Expats blues

There is no way for a “middle class” U.S. person abroad to BOTH:
1. Comply with U.S. tax and reporting obligations; and
2. Participate in normal financial planning, retirement saving, and generally live a productive life.
Compliance with the first makes the second impossible.
Compliance with U.S. tax law is complex and carries huge risks of mistakes.
Bottom line for Americans abroad:
retaining U.S. citizenship is a theoretical option but not a practical option.
Yes, in theory they can live with the costs, the threats of penalties, the invasive paperwork, FATCA Hunt, etc. (which are well documented on he blogs). In practice they can’t.
The biggest cost of being a U.S. citizen abroad is the time required to think about the U.S. imposed requirements of living outside the U.S. And, come to think of it, Americans abroad must also comply with the tax rules in their country of residence.
The Truth is:
If U.S. citizens abroad want a normal life where their opportunities in life are not restricted by the place of their birth, they must divest themselves of U.S. citizenship.
U.S. policies are forcing people to renounce their U.S. citizenship. It’s like “constructive dismissal” in an employment situation. If an employer wants to “fire someone” they can either “fire them directly” or “create conditions that make it impossible for the person to stay.
The U.S. has created conditions which make remaining a tax compliant U.S. citizen abroad (unless you are very very rich or very very poor) impossible.

OVDP Hotline and than the interpretations from the IRS agent.

After 5+ years nothing has changed - if anything it has become more confusing and unpredictable. The IRS seems to be making up the OVDP rules as it goes along and does not follow its own guidelines ( eg 4.16 of the IRM) and the opt-out results are highly subjective (some would say arbitrary). How can there be any trust/predictability or comfort in opting out?
The agent and technical advisor told me that I could not rely on the Hotline - what counted was their interpretation of the FAQs .  The final interpretation was up to the IRS agent. He also indicated the IRS has no plans to update any FAQ for streamlined.   In this regard, Streamlined Transition FAQ 8, does provide some role for a central committee in those cases designated for central committee review.  There is no indication which cases will be designated.  Since the examiner and examiner's manager must concur, perhaps there would be a review if they do not.  Or, if the technical adviser did not agree, although I was told that the technical adviser pretty much relies upon the examiner and the manager.
If the taxpayer goes straight into Streamlined without ever going into OVDP, the IRS in most cases will know nothing except what the taxpayer tells them in the certification, the amended or delinquent returns, and the amended or delinquent FBARs. The chances of the IRS attempting to deny the certification is less likely, unless there are indications in those filings that something is amiss and should be audited. During the audit, the taxpayer can still prevail if that happens.
http://www.irs.gov/pub//foia/ig/spder/WI-21-0814-1244_Redacted%5B1%5D.pdf

Article on the DOJ and IRS offshore tax initiative. "DOJ and IRS Use 'Carrot 'n Stick' to Enforce Global Tax Laws"

http://www.thorntonlaw.com/Docs/Nanavati_Thornton.pdf

Getting Rid of the Green Card

When you receive the visa status of "permanent resident" -- the green card visa -- that status will continue until the visa status is formally terminated. Visa status is formally terminated by paperwork.

The paperwork can start on either side. You can start the process to terminate your visa status as a permanent resident of the United States. This is done with Form I-407, and this is referred to as abandoning permanent resident status. Or, the government can start the process to terminate your visa status. This is called revoking your visa. The important point is the impact on your tax return filing requirements in the United States. Once you have a green card, you must file income tax returns in the United States, no matter where you live. This tax return filing requirement continues until, as I said, the formal paperwork is completed by which your green card is revoked or abandoned.

Small case study

We are a family considering relinquishing U.S. citizenship. We have questions like these before we proceed:

• Someone who obtained the green card 24 years ago, has resided outside of the U.S. (in France) for the past 18 years, is giving up the green card. What are the exit tax obligations?
• Someone who obtained U.S. citizenship and the citizenship of another country at birth, has resided outside of the U.S. (in the U.K.) for the past 20 years, is relinquishing the U.S. citizenship. What are the exit tax obligations?
• If the person did not file tax returns because the income was below the filing requirement, can the person still be considered to have fulfilled all the tax obligations for the past five years?
• Is it a good idea to file past five years returns?

This presents some interesting problems that need to be solved. This family is living at the intersection of the exit tax rules and the IRS's Holy War on Americans abroad--everyone who hasn't filed a tax return must be a criminal.

British families billed £500 – to prevent Americans dodging tax

New US tax measures, aimed at helping American authorities collect tax from their overseas citizens, are leaving innocent Britons out of pocket.

 http://www.telegraph.co.uk/finance/personalfinance/tax/11050777/British-families-billed-500-to-prevent-Americans-dodging-tax.html

More USPs are relinquishing their US citizenship

Number of Americans renouncing U.S. citizenship remains near all-time high:
http://bloom.bg/1sxZRlW
 

British Banker involved in Lionel Messi Tax Problems kills himself

As if it was not interesting enough that despite an agreement with the Spanish tax authorities to drop the case against Lionel Messi, a Spanish court decided to go on with the case, it is being reported by the Daily Mail, that a British banker who designed the plan killed himself in April.  

According to the Daily Mail, "David Waygood, who died last year aged 62, was the sole director of a firm which Spanish prosecutors claim hid tax owed by Messi.  Earlier this week, a judge in Barcelona ruled that Messi, 27, and his father Jorge should be charged with tax evasion after prosecutors claimed the pair hid more than £3million in shell firms in the UK, Switzerland, Uruguay and Belize.  One of the British firms was looked after at the time by Mr Waygood, a banker who had previously worked for HSBC and NatWest.  The Spanish prosecution alleged that the company held shares anonymously in a British-based nominee company."

Most common mistakes when calculating the FBAR Penalty

(1) To the extent that a foreign account is reportable, the amount that must be reported is the “maximum value of the account.” What is the maximum value of a foreign financial account? It is defined as “a reasonable approximation of the greatest value of currency or non monetary assets in the account during the calendar year.” How does one determine the maximum value of a foreign financial account? First, determine the maximum account value of the account during the year. Second, convert the maximum account value – for each account – into U.S. dollars using the exchange rate in effect on the last day of the calendar year.
(2) Although it might appear as though a foreign account does not need to be reported if its highest balance falls below $ 10,000, this is only partially true. Beware of the aggregate maximum aggregate value rule! The following example illustrates how the rule works. Assume that Mary has 3 foreign accounts, the highest balances of which never exceed $ 10,000 (USD). The highest balance in each account is $ 6,000. Although none of the accounts by themselves trigger an FBAR reporting duty because no single account exceeds the $ 10,000 reporting threshold, together they do. Indeed, the highest aggregate balance of the 3 accounts is $ 18,000. Therefore, all 3 accounts must be reported on an FBAR, even though none of them alone triggers an FBAR reporting requirement. But transferring the same $6000 to 3 different accounts with 3 different account numbers during the tax year does not trigger an FBAR reporting requirement - because the original balance can only be in one account at a time (no "double accounting" as seen already in OVDI/P). The FBAR rules carefully specify the “aggregate amount(s) in the account(s) exceed $10,000″, so sum across accounts then max, not max then sum. It is irrelevant as well if you assume daily or hourly reporting. Here is a hypothetical example how to confuse and misinform the taxpayer : 

All transfers hypothetically occur on the same day August 7. 2014 - Account A, has $6,000 in the morning and it is transferred in full to Account B at lunch time. Account B at tea time is transferred in full to Account C. Statements for A,B, and C will show the high balance of $6,000 all on the same reporting day for a total of $18,000. In reality banks have a cut off time for daily money transfers and a value date policy which makes the above example impossible to execute and therefore no FBAR reporting as well.

FATCA Comes To Canada: The Basics

Bill C-31, which became law in June, has added several provisions to the Act that require Canadian financial institutions to implement procedures to enable identification of US reportable accounts. Information about these accounts must be reported to the CRA. Canada has agreed to automatically exchange this information with the United States pursuant to article XXVII of the Canada-US treaty. The United States is expected to use this information to identify Canadians who are non-compliant US persons, such as US citizens who have not been submitting US tax returns and FBAR ("Report of Foreign Bank and Financial Accounts") filings.
These additions to the Act implement the intergovernmental agreement (IGA) signed by the United States and Canada on February 5, 2014 in respect of the Foreign Account Tax Compliance Act (FATCA). FATCA is US legislation that was enacted in 2010 and took effect on July 1, 2014.
New part XVII of the Act (sections 263 to 269) requires some Canadian financial institutions to report to the CRA certain information with respect to accounts held by certain US persons. Such institutions generally include not only banks but also investment entities such as funds, insurance corporations, and trusts.
Generally, a US reportable account of a Canadian financial institution is an account held by one or more specified US persons or by a non-US entity with one or more specified US persons that exercise control over the entity. A specified US person (as defined in the IGA) generally includes US citizens or residents; privately owned corporations controlled by US citizens or residents; and US partnerships, trusts, and estates. Common accounts excluded from the reporting requirements are RRSPs, RRIFs, PRPPs, RPPs, TFSAs, RDSPs, RESPs, and DPSPs.
Pursuant to new section 265, Canadian financial institutions must implement due diligence procedures to identify US reportable accounts. Separate procedures apply to pre-existing accounts and to new accounts. For all new account openings, Canadian financial institutions must determine whether an account holder is a specified US person. Under the IGA, opening a new account does not require the account holder to provide proof of citizenship (such as a passport or birth certificate). However, account holders may be required to provide self-certification that they are not US persons for US tax purposes.
For existing accounts, the requirements are generally less onerous—the financial institution does not have to contact all of its existing clients to obtain this information. Instead, such procedures for low-value pre-existing individual accounts (in excess of $50,000 but $1 million or less) involve searching electronic records for US indicia (such as US citizenship or birth) by June 30, 2016. Despite US indicia, low-value pre-existing individual accounts are not US reportable accounts if the account holders establish that they are not US citizens or US residents for tax purposes by meeting one of the exemptions outlined in the IGA.
High-value pre-existing individual accounts (in excess of $1 million as of June 30, 2014 or any subsequent year) are subject to enhanced review procedures. If electronic records do not contain sufficient information, paper records must also be searched for US indicia by June 30, 2015. Canadian financial institutions may elect to treat a high-value pre-existing individual account as not being a US reportable account if the account holder meets one of the exemptions outlined in the IGA.
Pre-existing individual accounts under $50,000 as of June 30, 2014 are generally not US reportable accounts. This exemption is significant. However, the monetary threshold is subject to certain aggregation rules in the IGA (for example, an individual account could be combined with a joint account).

Case study about an ordinary person--not a lot of money--can can get tangled up in misunderstandings about immigration law and tax law.

"I received my green card in 2006. When I was in the United States I only studied and I had few part time jobs because of my continuous health problems I couldn’t work a lot and therefore I never made a lot of money. I did my tax returns until the year 2010, because I left United States that year and I never came back. A few days ago I figured out I have to filled out an application I-407 (Abandonment of Lawful Permanent Resident Status). I didn’t know that this form was required to legally stop resident status. I always thought that just leaving the States for more than one year it was enough to lose the residence. I filled out the form I-407 on July , 2014 and I went to the U.S. Embassy in my country and filed it. Later I was reading on the internet something about Form 8854. I read that in order to left completely any connection of taxes with the United States its necessary to complete that form. My question is this. Let us say I earned very small amounts of money, perhaps $10,000 while I was in the United States, and after I left the United States I did not work so I did not have any income. Other people have helped me with money. Now what should I do? Am I required to fill out Form 8854 to have no problems with the United States government? I don’t want to have any problem with anyone. I am not even sure that I am a long term resident because I left the United States on 2010, and received my green card in 2006, but legally I filled out that I–407 of Abandonment of Lawful Permanent Resident this year on 2014. It also it says in the Form 8854 that I have to send to IRS the last 5 year taxes and I only have until 2010, because after that I didn’t have any income."

Correct Defective Returns that Go Back Beyond the Most Recent 3 Tax Years

Use the SDOP to correct your troubled tax returns relating to the most recent three tax years (i.e., 2011 through 2013) while filing amended tax returns to correct the more troubled tax returns relating to tax years 4 through 6 (i.e., 2008 through 2010).
Assuming that the streamlined submission is successful, the taxpayer would only be liable for an offshore penalty equal to 5% of the highest aggregate value of certain foreign assets. The five-percent penalty is in lieu of the failure-to-file and failure-to-pay penalties, the accuracy-related penalty, the information return penalty, and the FBAR penalty. Therefore, at first blush, going streamlined makes all the sense in the world.
However as we know this option has a major shortcoming. Because the streamlined procedures only cover the most recent 3 tax years when it comes to U.S. tax returns and not any earlier years, there is still the uncertainty of what could happen in tax years 2008, 2009, and 2010. Might the IRS assert onerous civil penalties? Might the IRS refer the case to CI for investigation or, worse yet, to the Department of Justice with a recommendation for prosecution ?

I have noticed on the web that currently many tax attorneys write in their blog posts about that the "willful FBAR penalty can be piled up like a stack of bricks, one on top of the other, as far as the eye can see" and that one could be looking at 50% of the highest balance (which is wrong btw.). I am again a bit reminded of the times in 2010 to 2012 where the compliance industry was mainly interested in "fear mongering" and rounding up their "clients" to be processed as fish fertilizer . Keep in mind it is not realistic to assume what the IRS can do (most egregious cases) according to the statues but what they will do according to their limited resources and policy. The probabilities of being "Zwernered" are very low.
 http://www.mnp.ca/en/media-centre/blog/2014/6/15/attention-americans-foreign-bank-accounts-reporting-fbar-online-filing-is-now-mandatory

Germany Brings FATCA Law Into Force #GATCA

via Germany Brings FATCA Law Into Force http://bit.ly/WYdoYx

Julius Baer Banker Charged with Leaking Cayman Islands Client Information.

The Swiss authorities have charged former Julius Baer banker Rudolf Elmer with contravening banking secrecy laws. Elmer is alleged to have leaked details of Cayman Islands client accounts via WikiLeaks between 2007 and 2011, long after he left the bank's Cayman division. He is also charged with offering bank account data to Germany's finance ministry.

“Elmer sees himself as a whistle-blower,” prosecutor Peter Giger said by telephone. “He has a message he wants to bring across. I am convinced he broke the law in trying to do that.”

Countries including the U.S. and Germany have used testimony from former Swiss bankers or stolen client data to pursue crackdowns on tax evasion. Swiss laws threaten bank employees with a jail term if they divulge client information. Elmer was detained in January 2011 and held for about five months on a judge’s order after prosecutors argued that he might tamper with material important to their investigation, Giger said. He said Elmer remains free as the case continues.

He handed over two CDs he said contained information of tax dodging by more than 2,000 “high-net worth individuals” and corporations to WikiLeaks’ Julian Assange in 2011.

He said in 2011 that "I think, as a banker, I have the right to stand up if (I think) something is wrong."

 

Elmer worked for Julius Baer from 1987 till 2002, where he had risen to the position chief operating officer for the bank’s Cayman Islands division. There he claimed to have found evidence of tax evasion, and his employer’s complicity in the illegal activities. The bank denies the charges, and accuses Elmer of fabricating documents and threatening two staff members.

The former banker lived in self-imposed exile in Mauritius after being sacked at Julius Baer and became a loud whistleblower against Switzerland’s banking industry.

He was arrested in 2010 and faces trial in Switzerland for contravening banking laws. If convicted, he could face up to eight months in prison.

Short summary how to determine FBAR Penalty Liabilities

The IRS has authority to assert FBAR civil penalties. Contrary to popular belief, an FBAR violation doesn’t automatically mean that a penalty will be asserted. Examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted. For example, the examiner may determine that the facts do not justify asserting a penalty. In that case, the examiner will issue an FBAR warning letter, Letter 3800.
According to IRM 4.26.16.4, the sole purpose of the FBAR penalty is to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether issuing a warning letter and securing delinquent FBARs, rather than asserting a penalty, will achieve the desired result of improving compliance in the future.
Other factors to be considered when applying examiner discretion include: (1) whether the person who committed the violation has been previously issued a warning letter or has been assessed the FBAR penalty; (2) the nature of the violation and the amounts involved; and (3) the cooperation of the taxpayer during the examination.

The statute should be interpreted to give the IRS unreviewable discretion with respect to the penalty up to the maximum permitted by the statute

The continuing saga in Williams has been brought to a close (unless appeal) with this issue.  United States v. Williams, 2014 U.S. Dist. LEXIS 105666 (ED VA 2014), here.  (The order is cryptic, so I also include the brief (without exhibits) as follows:  Williams  opening brief, here, U.S. opening brief, here, Williams response brief, here, and U.S. response brief, here.)
The Internal Revenue Manual states that in assessing penalties, examiners "exercise discretion" in determining "the total amount of penalties to be asserted," and also states that examiners are to consider the facts and circumstances of each case when making that determination. The Manual clarifies that the penalties are determined "per account," and not per person or per unfiled FBAR. IRM § 4.26.16.4. The Manual specifically lists "[t]he nature of the violation and the amounts involved" and "[t]he cooperation of the taxpayer during the examination" as among the factors that an examiner should consider. However, it also warns that "given the magnitude of the maximum penalties permitted for each violation, the assertion of multiple penalties . . . should be considered only in the most egregious cases." IRM § 4.26.16.4.7.

 Standard of review is de novo or the standard is for abuse of discretion.

1.  Violating Section 5314 by signing his federal tax return. The court found the signature "prima facie evidence that the taxpayer knew the contents of his return," Op. at 12, and concluded that he was also on notice of the FBAR requirement.
2. Not carefully reviewing the instructions on his federal tax return suggested a "conscious effort to avoid learning about reporting requirements."
3. False answers indicate an intent to conceal financial information.
4. 50% or $100,000 per year penalties issued by the IRS were within the range authorized by Congress in 31 U.S.C. § 5321(a)(5)(C) for willful violations.
5. Were penalties assessed for an improper purpose ? Court cannot simply substitute its judgment for that of the agency.
6. Eligible for the FBAR penalties, including the penalties for willful violations ?
7. FBAR penalties were authorized by the statute and "accordingly . . . were proper."
8. Reasoned decision-making and consideration of the appropriate factors.
 http://federaltaxcrimes.blogspot.ch/2014/08/williams-yet-again-court-bows-deeply-to.html

SDOP or is the IRS trying to "ZWERNER" me ?

I think it is save to assume that the government will never be required to refund the so-called “5% miscellaneous offshore penalty” (which of course is not a penalty under the law in the first place), pursuant to the very terms of the Certification.  The taxpayer waives ” . . . all defenses against and restrictions on the assessment and collection of the [5%] miscellaneous offshore penalty.”  It is a one way street. The most troubling issue of this program for U.S. residents, is they are agreeing to pay something that does not exist under the law and may have no correlation with any income taxes owing; i.e., the so-called “5% miscellaneous offshore penalty.”  Why should a “good faith” taxpayer be paying any portion of their principal to the government, if they made an inadvertent mistake of what are typically very complex provisions in the tax law?
I suspect we will see cases where the government will go after (selectively) some taxpayers who enter into the streamlined process.  The cases they will select are the ones they think the taxpayer should have gone in under the OVDP.  That will be the determination of the government, not the individual taxpayer; and hence can put the taxpayer in further jeopardy.
http://tax-expatriation.com/2014/07/30/the-risks-to-uscs-and-lprs-filing-late-u-s-income-tax-returns-via-the-so-called-streamlined-process/ 

Americans Abroad Renouncing Citizenship

http://www.c-span.org/video/?320307-3/washington-journal-americans-renouncing-citizenship

“Russia’s plan to apply counter-sanctions will include a welcome ban of FATCA compliance industry”

From Bloomberg News, Russia Eyes Banning U.S. Chicken And Some European Fruit. But that is not all. They plan to ban the FATCA compliance industry as well:

In a separate development, Russia’s lower house of parliament, or Duma, may consider legislation to target companies in nations that impose sanctions against Russian citizens or businesses, according to Russian lawmaker Evgeny Fedorov.
The proposal would bar audit and consulting firms from nations defined as “country-aggressor” from working in Russia. If enacted, the law would cover Deloitte, KPMG, Ernst & Young LLP, PricewaterhouseCoopers LLP, Boston Consulting Group Inc. and McKinsey & Co., Fedorov said in a telephone interview today.

Update from the OVDP Hotline and Agent Bayer

The question was whether SDOP or SFOP strictly applies only for the past 3 years of troublesome tax returns. By this I mean – only for years 2011-2013 and that under the Program you cannot amend (or file) say, a tax return from 2010 or earlier.
The New Streamlined Program is not available in the situations set out below:
Category A would involve someone such as Mr. XX, a naturalized American living abroad for decades. He timely filed income tax returns but filed them all incorrectly; sadly Mr. XX believed in self-medicating and had done all of his tax returns himself. Part of his problem was that he believed only his overseas salary and US source income was taxable; he omitted significant offshore income. While the general Statute of Limitations (SOL) is 3 years, in Mr. XX’s case the statute could be extended to at least 6 years because Mr. XX had omitted a lot of income from his returns (25% or more).
Category B would involve someone such as Mr. YY  who had not filed tax returns for over 10 years while living and working abroad. He did not want to enter OVDI/P, and he could not fit within the parameters of the old Streamlined Program. He filed going forward and has been fully tax compliant since 2011.  Returns for all older tax years remain unfiled. The SOL remains open indefinitely when tax returns are not filed and Mr. YY fears a knock on the door someday about his past tax transgressions.
Category C Facts same as Category A except Mr. ZZ is a former Indian national who became after receiving his green card a US citizen and is living and working in the US for over 10 years now.

Sadly, the definitive answer from the OVDP Hotline is that neither of these types of cases can use the new Streamlined procedure.
Since the streamlined program is not intended for the kind of taxpayers outlined above, then clearly it is useless for anyone who thinks they can easily come into compliance. On the contrary, it appears to be a trap to get people to come out of the woodwork and then throw the book at them !

IRS Treatment of Penalties Following a Substitute for Return

In Robertson v. Commissioner (T.C. Memo. 2014-143) the Tax Court continues it’s now-we-see-it-now-we-don’t treatment of the Commissioner’s substitute for return (SFR). This varied treatment arises when the court considers the additions to tax (often referred to as penalties) applied in a notice of deficiency, penalties routinely included in every notice, for a taxpayer who did not file a return.
3 penalties (FTF, FTP, FTD) are almost always applied together. The first penalty is based on timing and applies when the taxpayer files his return late (without having filed an extension request). The second penalty is based on not paying the tax. It applies when the taxpayer fails to pay the tax shown on his return. The third penalty is for not making necessary tax payments. Each taxpayer has an obligation to estimate his total tax liability for the year and make estimated tax payments, usually making no fewer than four payments. If no installment payments have been made, or they are insufficient in amount so that there is a tax deficiency at the end of the year, a penalty may apply. The taxpayer can escape liability if he/she could have shown the failure was due to reasonable cause and not willful neglect. 
Procedurally, there is an order for how contesting the penalties will play out in court. First, the taxpayer must put the penalties at issue. Usually he does this in the petition. Next, the Commissioner must come forward with evidence it was appropriate to impose the penalty. This is referred to as the burden of production. Even though the Tax Court had considered the transcript, and its reference to the SFR, for the first and third penalties, it balked at relying on the transcript when considering the penalty for failure to pay the tax shown on the return. For this penalty to apply, it wanted to actually see the SFR – it wanted to see a return that showed a tax liability due. And to be such a return, it had to be a valid return, or in Mr. Robertson’s case, a valid SFR. The court had addressed the issue of what constitutes a valid SFR several times in previous court opinions.

IRS Collection Statute for Expats

The basics of the IRS collection statute are these:  They have 10 years to collect from you once a tax is assessed.  A tax is assessed when you file a return, an audit is completed and your appeals run their course, or the government computers prepare a return for you based on whatever information they may have (called a substitute for return or SFR).

If you never file a return, and the IRS doesn’t prepare one for you, the IRS collection statute never starts.

The IRS collection statute is placed on hold whenever the IRS is prohibited by law from collecting from you.  This is usually when you file an Offer in Compromise, a Collection Due Process request, or bankruptcy.  These can delay the IRS collection statute for many months or years.

Not to hurry the lead, but the IRS collection statute is put on hold while you are out of the United States.  More specifically, Sections 6502 and 6503(c) of the U.S. Tax Code work together to extend the collection statute if you are out of the U.S. for “a continuous period of six months or more.”

That is to say, if you are out of the U.S. for any six month period, the IRS collection statute is extended.  If you return every few months, so you are never gone for six months, then the IRS collection statute is never tolled.

No surprise here : The Fatca regime may have unintended consequences for financial system

Crackdown on Americans' money in overseas accounts may lead to the growth of shadow banking and the financial power of other countries.
Many financial institutions are still completely confused and unable to comply with the US government's Fatca regime. "Foreign Account Tax Compliance Act" sounds like another innocuous tax regulation. But it represents the most ambitious tax and personal data collection strategy in financial history. It will embolden and encourage more global intrusions by US government agencies. More people will be driven underground to seek shadow banking services.
Fatca is controversial because it dramatically shifts the burden of disclosure from the American person to their banks. Foreign financial institutions are now more than just tax bounty hunters for the US Internal Revenue Service (IRS), but pawns in an historical power play for control over the global financial system.
Government agencies possess long, institutional memories. Contempt for what they consider to be rogue bankers in financial centres such as Switzerland and its secrecy laws stretch back to the second world war.
Nazi Germany allowed Spain, Sweden and Switzerland to remain neutral so that they could be used as foreign exchange agents. Reichsmarks, the German currency during the war, were declared non-convertible by Allied nations. By trading with neutral countries, Germany effectively made its currency and gold convertible on the world market. These bankers helped the Nazis extend the war effort by importing goods and materials through converting reichsmarks.
US dollar and financial asset mobility accelerated in the 1950s with eurodollars - offshore deposits of US dollars. Unregulated, offshore US dollar accounts made it possible for the ill-gotten gains of tax evaders and criminals to flow overseas to secret Swiss bank accounts.
September 11 and the "war against terror" motivated all branches of the US government to aggressively pursue any terrorist activity. The US Department of Justice revolutionised the prosecution of offshore tax evasion in 2009 with a breakthrough criminal case against UBS, Switzerland's largest bank.

The bank was accused of conspiring to aid 52,000 American clients to evade US taxes. UBS avoided prosecution and agreed to reveal the identity of 4,450 US customers and paid a US$780 million fine. The IRS successfully ended Swiss bank secrecy and inspired a global crackdown on offshore tax evasion by US persons - embodied by Fatca.
The unintended effects and outcome of Fatca are already manifold, especially in Asia where shadow banking is a growth industry. An American gambler described to me how he stashes his poker earnings at a Macau casino to avoid Fatca's reach into banks.
Another innovative shadow banking service allows clients to deposit their yuan in an onshore, mainland bank account that they specify. For a 22 per cent commission they will exchange and deliver the US dollar equivalent of physical cash in a suitcase anywhere in Vancouver or New York. American residents in Asia seeking to hide assets only have to find a strictly local Asian bank with no links to the US banking system.
Russian billionaire oligarch Gennady Timchenko was recently affected by the policy of travel bans and asset freezes by the US government. He announced he would rip up his Visa and Mastercard and transfer all his personal credit card accounts to China's UnionPay.
Fatca is expected to yield US$870 million a year.
He told the Russian press: "In some ways it is more secure than Visa - at least the Americans can't reach it."
The ascendance of parallel financial powers represents a threat to US dollar hegemony. Fatca extends US taxing authority far beyond legally requiring expatriate Americans to file accurate tax returns.
According to Dan Mitchell, senior fellow at the Cato Institute, Fatca is expected to yield only US$870 million a year. "This is a miniscule amount compared to the amounts being spent to implement this law, by the US government and up to 100,000 other institutions who didn't ask to be part of this."
Resistance is futile for any bank that participates in the global money centres and needs to deal in US dollars. But the goal and reward isn't improved tax collection, it is a surveillance exercise made possible through the creation of a massive global database.