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AP: US Unleashes IRS On Russian Banks (Not Really)

From the whirling dervishes at the Associated Press:

US to unleash IRS on Russian banks


WASHINGTON (AP) — As the United States attempts to punish Russia for its actions in Ukraine, the Treasury Department is deploying an economic weapon that could prove more costly than sanctions: the Internal Revenue Service. This summer, the U.S. plans to start using a new law that will make it more expensive for Russian banks to do business in America…

Long before the Ukraine crisis, Congress approved the law in 2010 to curb tax evasion that relies on overseas accounts. Now, beginning in July, U.S. banks will be required to start withholding a 30 percent tax on certain payments to financial institutions in other countries — unless those foreign banks have agreements in place to share information about U.S. account holders with the IRS. The withholding applies mainly to investment income.

Russia and dozens of other countries have been negotiating information-sharing agreements with the U.S. in an effort to spare their banks from such harsh penalties. But after Russia annexed Crimea and was seen as stoking separatist movements in eastern Ukraine, the Treasury Department quietly suspended negotiations in March…

The new law means that Russian banks that buy U.S. securities after July 1 will forfeit 30 percent of the interest and dividend payments. The withholding applies to stocks and bonds, including U.S. Treasuries…

The AP and the rest of the administration’s new media are trumpeting this story in order to try to make it look like Obama and Congress are doing something to hurt Putin. Even though the law was intended to target Americans who were putting money in foreign banks, like Switzerland or the Cayman Islands, in order to avoid US taxes. (See bottom of this article.)

And the only way the Russians are being punished is by not getting a waiver. Which they shouldn’t be getting anyway.

The law would also snag big global banks with subsidiaries that don’t have agreements with the IRS to share information…

More than 50 countries have reached agreements with the U.S. to share tax information about U.S. account holders. The list includes countries famous for bank secrecy, such as Switzerland and the Cayman Islands…

The 2010 law is known as FATCA, which stands for the Foreign Account Tax Compliance Act.

Get it? ‘FATCA’ as in ‘fat cats’ like Mitt Romney. Which this law was meant to target.

It was designed to encourage — some say force — foreign banks to share information about U.S. account holders with the IRS, making it more difficult for Americans to use overseas accounts to evade U.S. taxes…

So it is really meant to target Americans, not the Russians. But our news media will spin anything to make it look like Obama and the Democrats are doing something about Ukraine.

This article was posted by Steve on Tuesday, May 6th, 2014. Comments are currently closed.

2 Responses to “AP: US Unleashes IRS On Russian Banks (Not Really)”

  1. Petronius says:

    “So it is really meant to target Americans….”

    Steve is exactly right. And it targets not only American tax evaders, but also those who pay their full share of US taxes on their foreign income.

    Those Americans living and working abroad, or who have retirement income from their work abroad, must pay income taxes on their foreign income in the country where it is earned. But they must also file and pay income taxes in the US. And their US reporting is based on their worldwide income, even though they are paying taxes in the foreign country. Although a portion of the foreign taxes may be offset against US taxes, there is still substantial double taxation.

    The US government has misrepresented FATCA as a means to discourage evasion of US taxes by American fat cats, but in practice it impacts everybody who has a foreign bank account and/or foreign sources of income or a foreign spouse. This includes all Americans living or working abroad. It also includes Americans who worked and married abroad and then retired in the US with foreign pensions or foreign assets or other foreign investment income.

    The real objective of FATCA is to discourage Americans from keeping wealth overseas, where it would ordinarily be beyond the reach of Nerobama and his commissars.

    FATCA is an extremely oppressive Soviet-style law. The penalties are out of all proportion to the tax violations.

    FATCA requires submission of a special Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is not submitted to the IRS, which would be bad enough. Instead the FBAR must be submitted to a new agency called the Financial Crimes Enforcement Network.

    FATCA establishes a presumption of guilt. The presumption is that everyone who has a foreign bank account or foreign income is a criminal, and the burden of proof is on the taxpayer to prove his innocence.

    If the taxpayer makes an innocent mistake in his FBAR, he is subject to a civil penalty of $10,000 per each mistake. If the mistake is willful (and the presumption under FATCA is that it is willful), the civil penalty is $100,000 or 50 percent of the balance in the account, whichever is greater. Willful mistakes are also subject to criminal penalties. The burden of proof is on the taxpayer to prove that his mistake was not willful.

    Bear in mind that mistakes are rather easy to make because foreign countries do not gear their languages, currencies, fiscal years, banking practices, wage reports, mortgages, and tax laws to the US tax law. Therefore a certain degree of subjectivity always enters into the translation from foreign data into US reporting requirements. Because of the burdens imposed by FATCA on foreign banks, many foreign banks now refuse to do business with Americans –– even those Americans working locally.

    Thus the impacts on American taxpayers are extremely harsh, and FATCA impacts even those Americans who faithfully report their foreign income to the best of their knowledge and ability and who and pay tax on it –– who in fact will normally pay double tax (the foreign income tax plus US tax).

    The result has been an unprecedented number of US citizens who live or work abroad, or who have foreign sources of income, renouncing their US citizenship. Currently about three thousand Americans every year are renouncing US citizenship to avoid FATCA penalties. The number for 2013 was 2,999 Americans, and the number has been increasing every year since Nerobama took office.

    To make matters worse, Sen. Chuckie Schumer has introduced a bill to double the US exit tax to 30 percent of the wealth of anyone leaving the US. The exit tax even catches foreign spouses who give up their green cards to return to their homeland.

    The Schumer bill has not passed yet, but that is the kind of country American is becoming under Nerobama’s regime.

    • Steve says:

      Wow. I didn’t realize FATCA was that punitive. Boy, the Russians must be really quivering.

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