Yes, I know you think it belongs to you. But, Obama and his inside-the-beltway friends know better than you what to do with your money. And, after all, they really need it. You know, with a projected $1.6 trillion deficit and all that.
On February 1, the Obamites released their financial fiasco for fiscal year 2011, otherwise known as the proposed federal budget. A key portion of the budget is the revenue proposals, contained in a document referred to as the Greenbook, because—surprise! —It's printed with a green cover.
If you suffer from insomnia, download the Greenbook from the Treasury Web site and spend a few hours looking it over. You'll save on your Ambien prescription. And, you'll gain fascinating insights into vital national priorities like the "Inland Waterways Trust Fund."
But I digress. The real point of the Greenbook is to outline how the Obamites' plans on how they intend to forcibly extract money from you, a concept otherwise know as "taxation." Think of it as sort of a root canal, but on your money, not your mouth.
Since my consulting practice focuses on international tax, I spent a recent sleepless night reading up on the Treasury's modest proposals to "Combat Under-Reporting of Income on Accounts and Entities in Offshore Jurisdictions." Here's a summary—in as plain English as I can muster—of their proposals.
"Require Increased Reporting on Certain Foreign Accounts." Basically, this would impose a 30% tax on many types of U.S-source income to foreign financial institutions (FFIs). The definition of a FFI is very broad, and includes "certain entities engaged primarily in the business of investing, reinvesting, or trading in securities, partnership interests, commodities, or any interests in the foregoing." In any words, "hedge funds." And that's not all. The rules "would be designed so as not to disrupt ordinary and customary market transactions." Well, of course!
H.R. 4213, the "Foreign Account Tax Compliance Act" (FATCAT) contains a similar provision. This bill passed the House of Representatives in December, and is now before the Senate. President Obama strongly supports it, and my colleague, former Congressman Bob Bauman, tells me that even the most conservative senators are afraid to stand in its way because it punishes those supposedly evil offshore investors. The only way to avoid the withholding tax would be for FFIs to acknowledge the existence of offshore accounts with a U.S. beneficial owner to the IRS. They would also be required to disclose relevant information including account ownership, balances and amounts moving in and out of the accounts.
In many offshore jurisdictions, disclosing this information violates bank secrecy laws. H.R. 4213 requires FFIs to seek a waiver of secrecy laws so they can provide this data to the IRS. Otherwise, they would need to close all accounts with U.S. beneficial owners. And that's what I suspect a lot of FFIs will do when Obama signs H.R. 4213.
"Require Disclosure of Foreign Financial Assets to Be Filed with Tax Return." If a U.S. taxpayer holds foreign "bank, brokerage, or 'other'" financial accounts with an aggregate value of $10,000 or more, the IRS wants to know about it. But the Obamites want more. The Greenbook proposes to significantly widen the reporting requirements if the aggregate value of assets you hold offshore exceeds $50,000. You'd need to report not only foreign financial accounts, but also any "interest in a foreign entity or any financial instrument or contract held for investment and issued by a foreign person."
What's more, you're guilty until proven innocent. Once the IRS establishes that you have an interest in an offshore account you didn't report, it's value would be presumed to exceed $50,000.
"Impose Penalties for Underpayments Attributable to Undisclosed Foreign Financial Assets." The penalties associated with non-disclosure of foreign accounts are already almost unbelievable. Just ask anyone who's ever had to pay up. But the Obamites want more. The Greenbook proposes doubling the 20% accuracy-related penalty to 40% "in regard to any understatement attributable to undisclosed foreign financial assets." However, "the penalty would not be imposed when the understatement is due to reasonable cause." Whew, that's a relief!
And, that's just for starters. In my next column, I'll cover the remaining suggestions the Greenbook has to balance the budget on the backs of offshore investments. And (drum roll please), I'll add up the numbers to tally the Treasury's official estimates of how much revenue these initiatives will bring in over the next decade. Hint: it's a vastly different number than the $100 billion in tax revenues that Sen. Carl Levin (D.-Mich.) claims U.S. taxpayers evade each year through offshore investing.
Copyright © 2010 by Mark Nestmann
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