Posts Tagged ‘Form 8938’

Tax Roundup, 7/10/2012: A truly Rich expatriate; the tax effects of executive politics; just park it by the pole.

Tuesday, July 10th, 2012 by Joe Kristan

Lynnley Browning at Reuters reports that “Denise Rich Renounces U.S. Citizenship, Will Save Tens Of Millions In Tax Dollars,”  prompting millions to wonder, who is Denise Rich?  Celine Dion fans (I’ve never met one, but I know they are out there) will know her as the songwriter behind Celine’s “Love is On the Way,” but political junkies know her as the wife of Marc Rich, the former fugitive billionaire who stopped running when Denise pulled enough strings and spread enough cash around to get him a pardon at the end of the Clinton administration.

Her move prompted some folks to tell her not to let the door hit her on the way out, and perhaps anybody who enables Celine Dion deserves a little venom.  But we should ponder for a moment why money is fleeing the country like deposits fleeing a Greek bank.  Mark Steyn tells us why celebrating her departure is unseemly:

… all this “what sort of red-blooded American renounces her citizenship over tax?” stuff is a wee bit much. It is the Government of the United States, uniquely in the civilized world, that binds citizenship to tax. An American who falls in love with an Uzbek or takes a job helping starving Third World children in Southern Sudan remains liable for US taxation and has to file US paperwork that is, in fact, more onerous than that required of US residents, and is about to get more so…

Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American – even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain, Slovenia taxes you if you’re a resident of Slovenia, but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double-taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.

As I say, no other developed country does this – although Eritrea does.

On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills – or a small businessman attempting to expand his distribution in Canada.

IRS Commissioner Shulman’s shoot-the-jaywalkers approach to offshore tax compliance, combined with half-baked populist legislation against “the rich” that punishes Americans abroad and businesses for committing everyday finance, is quietly bleeding our economy with a thousand little cuts.  Fabulously-wealthy people like Denise Rich can take a hike, but most of us are stuck here.  We can berate her as “unpatriotic” for leaving, but when you get that $10,000 fine for being one-day late in reporting that bank account you inherited from Uncle Hans in the old country, she’ll have the last laugh.

The TaxProf has moreUpdate: Matt Welch on the Dark Side of Anti-”Swiss Bank Account” Politics”

But we can still move within the country:  Did a Maryland Tax Increase Cause Taxpayers to Flee the State?  (Russ Fox)

Nanette Byrnes: Study: Companies of Republican CEOs pay more tax than Democrats’ (Tax Break).  Why?  One theory is that Democratic CEOs would tend to be in industries that play the government for tax breaks, like low-income housing and renewable fuels, and that Democrats are more comfortable with politicians playing God with the economy.  Unfortunately, the desire  to meddle with the economy via tax breaks is one thing both parties can agree on.

But we knew that before it become official: It’s Official: Tax Gridlock Until After November Election (Janet Novack)

William Perez, Tax Reform Proposal from the Bipartisan Policy Center

Blaming the accountant: Rihanna Files Suit, Alleges Financial Mismanagement Resulted in Tax Audit (TaxGrrrl)

Anybody could lose track of $800,000 in singles.  Take this hard-working Ohio attorney described by

Sparta attorney Meredith “Larry” Lawrence will be sentenced in October on federal tax evasion charges for failing to report income from various sources – including Racers Gentleman’s Club in Sparta.

A jury found him guilty Friday on three counts of filing a false tax return for three consecutive years, starting in 2005.

Attorney by day, strip club operator by night?  “Gentlemen’s clubs” tend to be open late.  Maybe he was just sleep deprived?

During the two week trial, Assistant U.S. Attorney Elaine Leonhard described how federal agents found $800,000 in Lawrence’s safety deposit boxes.

She described how fees collected from women who stripped at the club would be stuffed in a white envelope and delivered to Lawrence once a week. Strippers were independent contractors required to pay “house fees” to dance at the club. The strippers even had to pay a parking fee.

“Parking fee?” Yes, the glamor has truly gone out of show business.


Your tax preparer needs to know about that place in Mexico

Friday, March 23rd, 2012 by Joe Kristan

Do the new rules on reporting foreign financial assets require you to report foreign-owned real estate?  Strictly speaking, no, reports Jack Townsend, but practically it often does.  He quotes the IRS web site on the issue:

Foreign real estate is not a specified foreign financial asset required to be reported on Form 8938.  For example, a personal residence or a rental property does not have to be reported. 

If the real estate is held through a foreign entity, such as a corporation, partnership, trust or estate, then the interest in the entity is a specified foreign financial asset that is reported on Form 8938, if the total value of all your specified foreign financial assets is greater than the reporting threshold that applies to you.

It’s the “corporation, partnership, trust or estate” language that gets you.  Many countries don’t allow direct foreign ownership of their real estate, but they do allow it through various entities.  Mexico, for example, requires a sort of trust for ownership of real estate.  You also have to report loans you have made to foreign persons, including real estate loans.  As the penalties for failure to report foreign financial assets on Form 8938 start at $10,000, even for inadvertent violations, you don’t want to miss the filing.

 Related: IRS lowers foreign financial asset filing thresholds; sets up new jaywalker-hunting blinds


Wall Street Journal coverage of the great IRS jaywalker hunt

Wednesday, January 4th, 2012 by Joe Kristan

The unrelenting efforts of Congress and Commissioner Shulman to clobber Americans abroad for foot-fault violations of tax reporting requirements — to shoot the jaywalkers to encourage the others — has gotten the attention of the Wall Street Journal editorial page. From William McGurn:

At the end of the day, after all, the global economy is really about human beings interacting with one another, bettering themselves and enriching their societies as they do. From the Ohio contractor working in Baghdad to feed his family back home, to the American professor teaching in Hong Kong, to the Boston-bred banker working in London, these individuals are overwhelmingly productive and law-abiding. In an ever more competitive global marketplace, their presence provides a critical boost to American fortunes in key parts of the world.
So here’s a New Year’s resolution for the IRS and its allies inside the Beltway: Maybe it’s time we treated these Americans as economic assets instead of criminal liabilities.

Via the TaxProf
Related: IRS lowers foreign financial asset filing thresholds; sets up new jaywalker-hunting blinds


IRS lowers foreign financial asset filing thresholds; sets up new jaywalker-hunting blinds

Friday, December 16th, 2011 by Joe Kristan

Congress last year passed yet another poorly-considered foreign financial asset reporting requirement, one which largely overlaps — but doesn’t replace — existing reporting requirements. Yesterday the IRS issued the rules for complying with the “FATCA” requirements; the rules require reporting at lower amounts than those on their draft forms issued earlier this year.
The new rules (TD 9567) require the filing of new Form 8938 (not yet released in final form) at these threshholds:
Unmarried taxpayers living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 (was $100,000 on the draft Form 8938) at any time during the tax year.
Married taxpayers filing a joint income tax return and living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 (was $200,000 on the draft 8938) at any time during the tax year.
Married taxpayers filing separate income tax returns and living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 (was $100,000 on the draft Form 8938) at any time during the tax year.
The new form will apply to the the same foreign financial accounts covered by the old FBAR Form TD F 90-22.1 — which is still required — for account owners. It will also apply to a number of items that don’t have to be filed under the FBAR rules, including:
– Shares of a foreign company held directly and not through a broker. For example, many policyholders of Canadian insurer Sun Life received share certificates when the company demutualized. Unless the shares have been transferred to a broker, they are to be reported on Form 8938.
– Interests in foreign partnerships
– Loans to foreign persons.
So if you fronted some cash to Uncle Hans in the old country to help him finance his new strudel shop, you might have a reportable foreign financial asset.
The penalties for failure to file this form are stiff: $10,000 for filing the form even a single day late. If experience with other IRS foreign reporting rules is a guide, they will automatically assess this penalty if they think it applies, no questions asked.
The rules for reporting foreign accounts are a mish-mash of overlapping and confusing rules that do more to ensnare the unwary — to shoot the jaywalkers — than to catch international tax cheats. Many of the items reported on the 8938 are already on the FBAR form, or on Form 5471 or Form 8865 (though some information won’t have to be reported a second time). It’s too bad the IRS isn’t doing more to streamline the rules, eliminate duplication, and help people come into compliance. Instead, they are bent on hammering the inadvertent violators.
Additional information:
Press release, IRS Releases Guidance on Foreign Financial Asset Reporting
Do I need to file Form 8938, “Statement of Specified Foreign Financial Assets”?