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The Hiring Incentives to Restore Employment (HIRE) act was enacted March 18, 2010 with the goal of increasing employment in the US. It also included the Foreign Account Tax Compliance Act (FATCA) that has some onerous taxes and regulations on foreign banks and US citizens who have foreign accounts.

FATCA Highlights:

  • A Foreign Financial Institution (FFI) must enter an agreement with the US Internal Revenue Service (IRS) otherwise any income they receive from US investments will be taxed at 30%.
  • This agreement between the FFI and the IRS will include the requirement that the FFI must disclose information about any accounts owned by US entities – companies or citizens. The information:
    (1) Name of the account holder or the US persons with holdings in companies and trusts Address, TIN (taxpayer identification number) and (in indirect relationships) those of intermediary companies
    (2) Account and custody numbers
    (3) Account balance and custody holdings
    (4) Gross receipts and gross withdrawls
    (5) Further information as requested by the IRS (follow-up requests)
  • The FFI must obtain a waiver for each US account holder (which must include the above information) so that the 30% withholding tax can be waived. If there are laws in the FFI’s home country that prevent the disclosure of the required information then the FFI is required to close the account or face the 30% withholding tax on any of its holding of US investments.
  • The disclosure requirements are not required for citizens who have under $50,000 in foreign accounts.

The following are exempt from FATCA:

  • any foreign government, any political subdivision of a foreign government, or any wholly owned agency or instrumentality of any one or more of the foregoing
  • any international organization or any wholly owned agency or instrumentality thereof,
  • any foreign central bank of issue,
  • any other class of persons identified by the Secretary for purposes of this subsection as posing a low risk of tax evasion. (This is my favorite. The US continues its tyrannical march towards being a nation of men instead of a nation of laws as evidenced by the Secretary of the Treasury having the power to decide who this law applies to.)

ZeroHedge believes this is the beginning of more restrictive capital controls to prevent US citizens from moving their assets off shore and out of the reach of an ever increasing bankrupt and desperate US government. I tend to agree.

So: should I only have $50,000 in non US banks due to FATCA?

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Well if our court cared about the constitution your final point would render this entire law act unconstitutional. But they dont so they strike down parts and allow others that clearly violate and institute their own "Laws". It is not the beginning though just another step that nudges the overton window. –  user4127 Oct 7 '11 at 20:26

2 Answers 2

up vote 6 down vote accepted

It's not a good look.

However, it seems to me this does not change things very much. US citizens have for a long time been required to pay tax on their worldwide income, and to disclose their worldwide bank holdings. This law seems to "just" rope foreign banks into helping enforce it.

You actually need to file a TDF 90-22.1 if you have more than $10k of total overseas assets of any kind: foreign stocks, ETFs, mutual funds, real estate, etc.
That's the most important threshold, not the $50k of FATCA.

So: should I only have $50,000 in non US banks due to FATCA?

If you feel the right allocation for you has more than $10k overseas I don't think this should make you change your mind.

ZeroHedge believes this is the beginning of more restrictive capital controls to prevent US citizens from moving their assets off shore and out of the reach of an ever increasing bankrupt and desperate US government. I tend to agree.

In that case you could very well conclude it's a good idea to have much more than $10k overseas now, before those capital controls come in.

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Good catch regarding the TDF. I was unaware of this. –  Muro Aug 18 '11 at 14:52
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+1 for In that case you could very well conclude it's a good idea to have much more than $10k overseas now... though I am not sure where to put it that is actually safe right now. –  user4127 Oct 7 '11 at 20:27

I think that you need to consult an attorney on this one. This seems like incredibly heavy handed policy, even by US standards. Amazingly, it can even apply to folks who travel to the US and are deemed to have a "substantial presence".

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Good catch about the "substantial presence". I missed that part. Incredible. I wonder what effect this will have on US capital markets. Some banks may decide that is not worth the hassle to hold US accounts anymore and focus on other areas - like Asia. –  Muro Jan 10 '11 at 23:55
    
It's definately crazy, and there are lots of cases that this will cause all sorts of problems for. People with dual citizenship, business interests overseas, etc. –  duffbeer703 Jan 11 '11 at 13:24
    
This is a tax. And until it has been enforced you are not able to challenge it. And since you are not the one being enforced upon you can not challenge it. And there are 3 or 4 other things that will keep it from being challenged successfully even though it should be obviously unconstitutional. –  user4127 Oct 7 '11 at 20:29

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