Tuesday, December 20, 2011

New IRS rules on Foreign Holdings, Life Insurance Policies, Pensions

When one country is running out of funds, the government will find various ways (methods) to get more $$$ from taxpayers such as, increasing income tax and service tax (or also known as sales tax), proposing unnecessarily big projects worth of multimillion or multibillion of dollars, increasing fares/ticket charges for public transportation, tourist attraction sites, parking sites, highway tolls etc.

Throughout the years, all the U.S. taxpayers (including foreign workers working in the USA) have to declare all their savings accounts in overseas countries. Under the latest tax regulations 2011, the U.S. taxpayers have to declare their foreign stock holdings, life insurance policies and pensions outside the USA. This will affect those U.S taxpayers who withdraw money from foreign stock holdings, pensions or life insurance in overseas countries as they need to declare the withdrawal as part as their 'incomes' when they submit their income tax. In other words, the U.S. taxpayers have to pay extra taxes due to withdrawal of these 'incomes' from overseas countries.

Do you think it's fair? I don't think at all.. We are just normal working people who have contributed and declared taxes as required by the US government. The government should divert their attention to rich corporations or wealthy people who tend to run away from the tax regulations.

New IRS rules demand more info on foreign holdings

(Reuters) - Hundreds of thousands of U.S. taxpayers must reveal for the first time detailed information about foreign stock holdings, pensions and life insurance policies, under new U.S. Internal Revenue Service rules detailed on Monday.

The new requirements may present legal risks for U.S. taxpayers living in countries with broad or vague privacy laws, said international tax experts.

Designed by Congress to snare tax dodgers with funds stashed abroad, the new rules are also likely to hit unsuspecting immigrants and first-generation Americans. Even tax preparers may be caught off guard.
"The days of the secret, offshore trust are over," said Richard Luthmann, a lawyer in New York who said he is working with clients from India and Canada on tax disclosure.

The rules are "really hitting a lot of unsophisticated persons with international ties," he said.
The IRS on Monday published nine pages of instructions for filling out a new form that taxpayers must file with 2011 tax returns due on April 15, 2012. The exact number of taxpayers affected is unclear, but is in the hundreds of thousands.

The new form applies to U.S. taxpayers living in the United States with at least $50,000 in assets abroad as of December 31, and to Americans living abroad with at least $200,000 in assets.

Taxpayers who duck the new reporting requirement could face up to $50,000 in penalties.

U.S. taxpayers have always had to pay tax on foreign income. The new requirements are likely to expose income that in the past has been hidden from IRS view, intentionally or not.

The IRS is "out in virgin territory" with these regulations, said Charles Bruce, an attorney with the Bonnard Lawson International Law Firm.

"The degree of complexity is extraordinary for a form aimed at individuals. Few people will be able to fill out this form without hiring a return preparer or making a lot of mistakes."

The new disclosure rules are part of 2010's Foreign Account Tax Compliance Act, or FATCA.

Under the new rules, taxpayers must disclose foreign stock and bond holdings; foreign pensions that start to pay out when the taxpayer reaches retirement age; and hedge fund and private equity accounts. Foreign assets held by a U.S. institution, like shares of a foreign company managed by a U.S. mutual fund, are not subject to the reporting requirements.

Foreign real estate is also exempt, though taxpayers owning foreign property through a company or a trust must disclose.

Individual reporting requirements will be followed in 2013 by requirements for financial institutions to release account holder information to the IRS. With the two data streams, IRS will be able to cross reference information, said Stanley Ruchelman, a tax-planning lawyer in New York.

The IRS "expects to receive the same information from two difference sources" to "ensure that each one is reporting correctly," he said.

FATCA is getting a harsh reception abroad.

Canadian Finance Minister Jim Flaherty, in a September letter to U.S. and Canadian media outlets, said the FATCA requirements "would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians."

Foreign banks may decide to drop U.S. customers rather than submit information to the IRS, experts said.
FATCA's individual reporting requirements may be problematic for some U.S. expatriates. Revealing too much information about business associates could break the law in some countries, but that does not mean the IRS will let expatriates off the hook.

"You've got to face this issue of, do I face the U.S. penalty or do I face a criminal sanction in the country where I live? That's pretty harsh," said Laurie Hatten-Boyd, a principal with the Big Four accounting firm KPMG LLP.

Such a scenario could arise, she said, with a swap where the counterparty is a foreign entity. The new IRS form demands disclosure of a swap counterparty's name and mailing address.

(Reporting By Patrick Temple West in Washington; Editing by Steve Orlofsky)

(Source: http://uk.news.yahoo.com/irs-rules-demand-more-foreign-holdings-192643633.html)

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