Banking outside the country still legal. For now.
By Michael Mealling
As April 15th approaches many of us are dealing with IRS tax forms. Some will have noticed the sections that ask if we have any bank or brokerage accounts in other countries. That is a result of the Foreign Tax Compliance Act of 2010 (FACTA). When many here in the US hear of someone having an “off-shore account” they instantly assume something nefarious is going on. But outside the US having money outside your country is the norm. Most of Europe's retirement accounts are in a country other than the one the person lives in. Everyone else in the world thinks we're a crazy police state for monitoring and taxing its citizens this way.
FACTA's reporting requirements on foriegn banks is onerous enough that many banks (Deutsche Bank, Commerzbank, HSBC, ING Group and Credit Suisse) are closing US accounts and refusing new ones becaue they simply aren't worth the effort.
The result is that very few US citizens hold money outside the US and that number is shrinking. Economists suggest that while it doesn't constitute institutional capital controls, it is the functional equivalent of capital controls for individuals.
The operating assumption behind FACTA and the IRS's implementation of it in the courts is that the mere presence of a bank account outside the country with anything more than a few thousand dollars is probable cause for investigating and prosecuting. If that position stood up in court then the result is the functional equivalent to making it illegal for US citizens to have direct financial relationships with institutions outside the US.
Thankfully it didn't. While the rest of Jimmy Pflueger's life is a mess the Federal District Court of Hawaii did acquit him of all four counts of tax fraud. The court held that the mere presence of an off-shore account does not indicate that a crime has been committed.
But how long before it is? As the bureaucratic overhead increases and any tax and income advantages disappear (advantages the rest of the world enjoys), how long before it is illegal to have money overseas? That's China's policy, by the way. One result is that US citizens abroad are finding the overhead so high that it outweights any benefits of US citizenship. That's one reason citizenship renunciations are so high.
Is this really where we want to go?
comments powered by Disqus