25 January 2009

The Other US Border Fence - To Keep Your Wealth In


This is a special guest blog from a US ex-pat acquaintance who currently resides in central Europe. It represents the author's personal research and experience.

The Other US Border Fence

What most Americans don't realize is that construction of a legal fence to prevent US taxpayers from escaping from the IRS's controlled pastures is progressing on schedule. Congress has been expanding and strengthening this fence for decades, and the Heart Heroes Earning and Assistance Relief Act was only the latest nail in the soon to be tightly sealed coffin.

The US is the only country besides Libya that taxes the world wide income of it's non-resident citizens, and the HEART act has made expatriation much more difficult, and much more expensive.

Since the passage of HEART in June 17, 2008, any person seeking a green card, long term visa, or US citizenship should carefully consider whether they want to open their entire world wide finances to the IRS's thereafter eternally prying eyes, because of the Hotel California Problem.

Meanwhile, the IRS has been busy revising the 2001 Qualified Intermediary (QI) Agreement. A QI is a foreign financial institution that has agreed with the IRS to undertake certain U.S. withholding and reporting responsibilities and has agreed to audits by an external auditor. This is the agreement with the IRS that all international banks that allow accounts from US citizens have to sign.

The QI noose (er, agreement) will be tightened on December 31, 2009 in the following ways:

1) It forces the QI to identify parties responsible for QI enforcement to the auditors, and would open these parties to prosecution (a la Raoul Weil from UBS).

2) Allow the auditor to probe non-US bank accounts to see if they have characteristics of a US citizen controlled account. This would surely violate Swiss bank secrecy laws.

3) Requires Audit oversight and review by a US auditor.

These three points dramatically increase the costs for smaller banks to have US account holders and maintain status as a QI. This new QI agreement is forcing numerous Swiss banks to refuse to open new bank accounts for US citizens, and it is also forcing these banks to chase away their current US constomers. As we know UBS has left 19,000 US customers in a pinch and is forcing them to find new banks. No bank in Switzerland will accept these accused "tax fugatives" any more. It has long been impossible for a US citizen to legally open an account with any of Europe's discount brokers like Swissquotes or Internaxx, and now US citizens are having to search for financial services in a rapidy drying up pool of international offerers.

On January 15, the Taskforce on Financial Integrity and Economic Development met in Washington. Under the guise of chasing tax evaders and cracking down on tax havens, we will soon see new measures that will further restrict your financial freedom. Americans just don't understand the benefits of financial privacy, and the IRS and Congress have been working for years to convince citizens that this right to privacy is trivial compared to the necessity of taxing all wealth of people holding US citizenship papers wherever it may be held.

Some think that "high net worth individuals" will be the low hanging fruit for the tax collectors in the looming budgetary crisis. These not-sufficiently-rich-to-bribe-a-congressman-or-hire-a-team-of-lawyers type people have been corralled by the IRS, and when the time comes they will be easy picking.