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US Taxpayers, FATCA and Social Security

March 25, 2012 by 5 Comments

A question was posted on BoqueteNing.com about whether FATCA will require banks to withhold 30% of Social Security Deposits made to Banks in Panama that as not signatories to FATCA. Steven Mopsick, the tax attorney who spoke in Boquete earlier this year did some investigation on this and here is the information from him.

Hello to Lee and all  my friends in Boquete:

I finally heard back from my contacts in the IRS National Office on the question of whether payments to recipients of Social Security benefits living abroad will be subject to 30% FATCA withholding.  In other words, is there withholding on  people who are now receiving their Social Security checks by either direct deposit to a foreign bank, (as in a bank in Boquete)  or getting the checks mailed directly to them?

I knew the answer was “no,” but I wasn’t sure of the legal authority for it.

The proposed FATCA Regulations say, at §1.1471-2(a) “….. a withholding agent must withhold 30 percent of any withholdable payment made after December 31, 2013, to a payee that is” a Foreign Financial Institution (FFI.)

Since the payee on Social Security checks is the person receiving the benefit and not an FFI, no withholding is required.

Best regards,

Steve Mopsick
Federal Tax Attorney
Not admitted in California
Practice Limited to Matters before the
Internal Revenue Service
United States Treasury Department
United States Tax Court

On the Web | Steve’s Blog | LinkedIn |  Twitter
3600 American River Drive, Suite 220
Sacramento, California 95864
t 916-550-5363 f 916-550-5059

Steve@mopsicktaxlaw.com

 


Filed Under: Government, Taxes

A FATCA Update

March 8, 2012 by Leave a Comment

There is an active discussion on BoqueteNing.com about FATCA and it’s impact on US Social Security Checks. Steve Mopsick who did the presentation about FATCA at a Tuesday Community Meeting will post in that discussion later. For now I have this information, that Steve authorized me to post.

FATCA LINK to PDF File


Filed Under: General Interest, Government, Taxes Tagged With: ,

TCM: Steven Mopsick, US Tax attorney

January 24, 2012 by 10 Comments

Today the meeting at the BCP started early, at 10:15, not because I changed the time, but because the room was full, and the doors were closed. The topic of great interest to US taxpayers,  taxes and the new federal requirements imposed by FATCA. I wrote about FATCA May 19 2011, the post brought us the speaker who did todays presentation.  Mr. Mopsick read my post and asked if he could speak to at our meeting, I of course said yes.

Mr. Mopsick has years of experience as a Tax attorney both within and outside the IRS and he provided a detailed and clear presentation of the changes FATCA imposes on the ordinary expatriate taxpayer. He did point out our concerns about this seemingly draconian law are not shared in the US, there people are both unaffected and unconcerned, as US citizens abroad are being presented new hurdles and reporting requirements.

The text below is full of links to the IRS and tax sources for forms and circulars, some are PDF links and will download forms to your computer.

The summary is this, the new law adds to the reporting requirements of US taxpayers with assets out of the US. The original requirement of filing a FBAR Form TDF 90-22.1. This form requires you to report all foreign bank accounts if the  total deposited in the sum of all those accounts $10,000 or more at any time in the year.

He pointed out that despite Panamanian laws if you control the check book or assets of a corporation or foundation, even if you are not the owner of the stock, to the IRS it is your asset. Those accounts count for the FBAR. If you are like many people here you have never heard of a FBAR and never filed one. If not, the penalty for failing to file is $10,000, BUT if you have had taxable earnings in the off shore entities you can retroactively complete a pile of FBAR’s and mail them in with a letter saying, oops, sorry I was ignorant and the IRS will  not assess a penalty.

If however you had taxable earnings and did not report them under the current amnesty program you can pay the tax bill with interest and a sizable penalty of 27.5% of assets at their highest point of value to avoid criminal charges. I would certainly talk to a Tax Attorney before recommending this action.

If this was not enough to aggravate, there is a new form effective with your 2011 tax return. The form number 8938 requires much more information about your offshore assets. The circular explaining it is at this link .

If you live in Panama this portion might take you off the hook for this form.

“Taxpayers living abroad.
If your tax home is in a foreign country and you meet one of the presence abroad tests described next, you satisfy the reporting threshold if you are not filing a joint return and the total value of in determining the total value of your specified foreign financial assets is more than $200,000 on the last day during the tax year or more than $300,000 at any time during the tax year.

If you are married and file a joint income tax return, you satisfy the reporting threshold only if the total maximum
value of all specified foreign financial assets you or your spouse owns is more than $400,000 on the last day of the tax year or more than $600,000 any time during the tax year. plan.

Presence abroad.
You satisfy the presence abroad test if you are one of the following.
• A U.S. citizen who has been a bona fide resident of a foreign country or countries for an uninterrupted during the tax year.

• A U.S. citizen or resident who is present in a foreign country or countries at least 330 full days during any period of 12 consecutive months during the tax year being
reported.

http://www.irs.gov/pub/irs-pdf/i8938.pdf

If you do not qualify as a foreign resident the threshold for reporting is much lower, read the linked document above.

This is a link to the current draft form : Form 8938

Other forms to make life fun for US citizens include

Reporting a foreign Corporation Form 5471

Reporting a Foreign Partnership Form 8865

Reporting a Foreign Trust (Foundation) Form 3520 

Mr Mopsick explained that it is to your advantage to use a qualified CPA or other tax consultant approved by the IRS to assist in tax preparation, he does not suggest you do it yourself.

The meeting lasted from 10:15 to 1pm and many many questions, I am only going to clarify two points here.

1. The fear that in 2013 you will need to pay 30% to the IRS to remove your money from the US. The FATCA regulations have not yet been published for comment and therefore are not available. But the intent of the law is to force non US banks into contracting with the IRS and reporting on US Taxpayers. If you move your money from a US bank to a complying foreign bank there will be no 30% witholding. If you go to an ATM and withdraw your money there will be nothing withheld. Beyond that we need to wait for regulations.

2. As far as the IRS is concerned our local corporations and fundaciones are transparent. They will attribute assets and income to whomever controls the money. This in no way effects the laws of Panama but does mean if you have checkbook on a Panama Foundation or Corporation as far as the IRS is concerned it is your money.

There was much more and I will let others post more under comments. I am not sure if Mr. Mopsick is looking for clients in Panama, he is heading out to seminar lawyers and bankers in Panama City next. Still I am posting his contact information if you wish to followup with him.

Steven J. Mopsick

Federal Tax Attorney

Not admitted in California

Practice Limited to Matters before the

Internal Revenue Service

United States Treasury Department

United States Tax Court

steve@mopsicktaxlaw.com

Fax:  916.550.5059

 

 


Filed Under: Survival Kit Items, Tuesday Mornings Tagged With: , ,

TCM: Immigration, Banking and Property by Rainelda Mata- Kelly

September 6, 2011 by 4 Comments

As always Rainelda did a sterling job on explaining a great deal about the law in Panama as it relates to areas near and dear to people immigrating here. All the basics from her powerpoint are covered on her website. Mata-Kelly.com so I am not going to do Panama Law  101 here.

I want to simply repeat a few questions and answers from the the discussion.

How long can I stay on a tourist Visa?  The tourist Visa is 90 days. The current government is not fining people if they stay up to 180 days but the law remains 90 days. This complicates the drivers license issue. A non Panama drivers license is only good for 90 days, Police are doing their job correctly if they confiscate your car for driving illegally after 90 days. You cannot get a Panama drivers license on a tourist Visa.  The summation, if you are a tourist and you drive you need to reset your passport every ninety days by leaving the country for 72 hours.

Is there anything happening to allow people on Pensionado Visas to have a more permanent ID number so they do not need to change documents each time they change passports and what must they really change?

Rainelda said she knows of no changes currently under consideration on simplifying this. She did say that you should maintain your old passport and although you do not need to change every legal document on file with a new passport, the old and new passport numbers should be referred to in all new documents. You do need to register your new passport with immigration and they do stamp it registered. They will not replace your permanent Carnet but they record the new number. I also know from experience you do need to change you car registration documents or you will have a problem getting a new drivers license.

Some one asked about whether she should have shares to her corporation.  Rainelda responded yes. An attorney should issue the shares and you should designate whether they will have names or not. He who has bearer shares is the owner of the corporation and replacement of lost shares requires a trip to court.

When asked about Panama’s banks and FDIC type insurance she stated that there is no such thing as FDIC in Panama. She was also asked about Credit Unions in Panama and said that she did not recommend putting large sums into credit unions they are not regulated as well as banks.

She commented on people who are still in the process of getting cedulas and citizenship under the pre 2008 immigration law. Immigration is looking to close down that operation and she suspects they will push out documents faster, rather than slower to end the backlog and shut down the office handling pre 2008 files.

She warned people who are immigrating not to close their existing bank accounts before have new accounts opened in Panama. Stating that it is almost impossible to open an account here with out a letter from your existing bank. In addition she thinks that US Citizens will find themselves excluded from many banks in a couple of years when FATCA goes into effect.

One other question was to differentiate the Pensionado and Jublilado status and how they apply to discounts. Pensionado is a Visa that provides a discount to anyone who has the Visa regardless of age.  Jubilados are residents who reach the statutory ages. She emphasized that use of this discount comes directly from the businesses, it is not funded by the government.

Only the primary person who has the Pensionado visa, not a dependent is entitled to a discount at any age as a pensioner. A hypothetical family of six with one pensionado visa holder, permits a discount for the one Visa holder regardless of age. The other dependents are not eligible unless they are over 55 years for a woman, 60 for a man. If they are over those ages, since they are residents they qualify under the jubilado law. In reality a retired husband and wife, not minor dependents with Pensionado dependent carnets will qualify for discounts.

She discussed the tax issues on both property and income. Discussed reappraisal to lower tax rates and the various ways to transfer property.  One comment was about the sale of corporate stock. Rainelda said it is the responsibility of the buyer to withhold 5% of the selling price of the shares from the seller and turn it over to the tax authorities. This complicates what was the fastest easiest way to move real estate.

There was much more but I was the AV monkey pushing powerpoint buttons so perhaps if anyone else who was there can add please do make a comment here or better in the Ning discussion

I am not going out on limb endorsing Rainelda as an attorney for her areas of specialty. You will find people quoting lower prices and too often find yourself paying much more die to their errors or omissions.

Rainelda Mata- Kelly

Telephone:
 (Int. access code+507) 216-9299
Fax:
 (Int. access code+507) 216-9298
Mobile phone:
 (Int. access code+507) 6618-0515
e-mail:
 rmk@mata-kelly.com Website: www.mata-kelly.com
Office Address:
 Suites 406-407, 4th Floor, Tower B, Torres de las Americas, Punta Pacifica, Panama City, Rep. of Panama.
Mailing Address:
 P.O. BOX 0818-00534, Panama City, Republic of Panama

Filed Under: Government, Immigration, Legal, retirement, Survival Kit Items, Taxes

The HIRE Act and The Foreign Account Tax Compliance Act (FATCA)

May 19, 2011 by 11 Comments

Congress in the US passed a law, in 2010, the Hiring Incentives to Restore Employment Act, aka the HIRE act. It was on it’s face designed to help an economic recovery with incentives to encourage business to add employees. On the face and for most people and small businesses a good thing. However as in many good things government does to “help” it’s citizens this law has a potentially sinister side to US expats and US taxpayers who have interests in off shore businesses. Even if they are not trying to hide assets it will add a burdensome reporting requirement.

“The Foreign Account Tax Compliance Act (FATCA), enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act, is an important development in U.S. efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.

Under FATCA, U.S. taxpayers holding financial assets outside the United States must report those assets to the IRS on a new form attached to their tax return. Penalties apply for failure to comply with this new reporting requirement. Reporting is required in taxable years beginning on or after January 1, 2011.

In addition, FATCA will require foreign financial institutions to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. This new reporting regime applies with respect to payments made by foreign financial institutions to covered accounts on or after January 1, 2013.”

IRS

Reporting by U.S. Persons Holding Foreign Financial Assets

FATCA requires any U.S. person holding foreign financial assets with an aggregate value exceeding $50,000 to report certain information about those assets on a new form (Form 8938) that must be attached to the taxpayer’s annual tax return. Reporting applies for assets held in taxable years beginning on or after January 1, 2011. Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.

Reporting by Foreign Financial Institutions

“Beginning in 2013, FATCA will also require foreign financial institutions (“FFIs”) to report directly to the IRS certain information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. To properly comply with these new reporting requirements, an FFI will have to enter into a special agreement with the IRS during 2012. Under this agreement a “participating” FFI will be obligated to:

(1) undertake certain identification and due diligence procedures with respect to its account holders;

(2) report annually to the IRS on its account holders who are U.S. persons or foreign entities with substantial U.S. ownership; and

(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual account holders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity account holders failing to provide sufficient information about the identity of its substantial U.S. owners.

It is important to note that the details of the new reporting and withholding requirements pertaining to FFIs must be developed through Treasury regulations that have not yet been issued. Because the new requirements will go into effect in 2013, it can be expected that the regulations defining the new requirements will be issued during 2011 and early 2012.”

IRS

The regulations are not all there yet but the essence of this law has already made many international financial institutions shun American Citizens since they do not care to be pawns of the US Government. It will limit options for investment by US citizens. If I read it correctly Foreign Financial Institutions will now need to either not allow a US citizen to open an account or need to identify those people to the IRS.

According to the accounting firm Deloitte the Treasury dept will release the proposed regulations by the end 2011 and the law will go into effect Jan 1 2013. Deloitte

According to the accounting firm KPMG.

“FATCA withholding is effective for affected US payments after 2013. This withholding is not imposed for purposes of collecting withholding taxes but, rather, to compel foreign financial institutions (FFIs) and other affected foreign entities to disclose information about their U.S. account holders and owners. Beginning on 1 January 2013, affected foreign entities (and their common control affiliates) must either:
Identify and report to the IRS information about direct and indirect US account holders; or
Pay a 30 percent penal withholding tax on all US investment income and gross sale proceeds from U.S. stocks and securities.”
KPMG

The goal is flush out international tax evaders, not the legal ones like Halliburton or General Electric, but the illegal ones like perhaps you. Gone are the days of banking secrecy, uncle wants your money and he wants it now.

I have been asked if this means transfers from the US to a Panama account will have 30% withheld. I do not see any hint of this in the law. I see earnings for off shore investments and businesses being sought not the converse.

For a good current read on the topic you can download a pdf from Ernst and Young at this link.

As more is published about this I will return to the topic. I think the summary for now is that US taxpayers are indentured to pay income taxes for life, regardless of where they live and uncle Sam wants it’s share of any off shore earnings as well as domestic. Any illusions of privacy are rapidly disappearing in this increasingly shrinking world.

I do not see this effecting most retires unless they choose to avoid letting the IRS know about bank accounts offshore. It will probably inhibit financial institutions from wanting to do business with US taxpayers because they need to elect to cooperate, an expense, or not, potentially a bigger expense.

This link is to A Wall Street Journal article, an oped, on the effect;


Filed Under: Featured, Government, Taxes Tagged With: , ,