The U.S. Department of the Treasury today announced that the
United States has signed an intergovernmental agreement (IGA) with France to
implement the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010,
FATCA aims to curtail offshore tax evasion by facilitating the exchange of tax
information.
With today's agreement, 10 FATCA IGAshave been signed to
date.
"France has been an enthusiastic supporter of our effort to promote global
tax transparency and critical to drafting a model of FATCA implementation," said
Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. "This
agreement demonstrates the growing global momentum behind FATCA and strong
support from the world's most important economies."
France was among the
first countries to champion the underlying goals of FATCA and its
intergovernmental approach in 2012. The agreement was signed today by U.S.
Ambassador to France Charles H. Rivkin and French Finance Minister Pierre
Moscovici.
"The signing of this agreement marks an important step forward in the
collaboration between the United States and France to combat tax evasion," said
Ambassador Rivkin.
FATCA seeks to obtain information on accounts held by U.S. taxpayers in other
countries. It requires U.S. financial institutions to withhold a portion of
payments made to foreign financial institutions (FFIs) who do not agree to
identify and report information on U.S. account holders. FFIs have the option
of entering into agreements directly with the IRS, or through one of two
alternative Model IGAs signed by their home country.
The IGA between the United
States and France is the Model 1A version, meaning that FFIs in France will be
required to report tax information about U.S. account holders directly to the
French government, which will in turn relay that information to the IRS. The
IRS will reciprocate with similar information about French account holders.
In addition to the 10 FATCA
IGAs that have been signed to date, Treasury has also reached 16 agreements
in substance and is engaged in related conversations with many more
jurisdictions.
Have Unreported Foreign Bank Accounts or Companies?
The U.S. Department of the Treasury today announced that the
United States has signed an intergovernmental agreement (IGA) with France to
implement the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010,
FATCA aims to curtail offshore tax evasion by facilitating the exchange of tax
information.
With today's agreement, 10 FATCA IGAshave been signed to
date.
"France has been an enthusiastic supporter of our effort to promote global
tax transparency and critical to drafting a model of FATCA implementation," said
Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. "This
agreement demonstrates the growing global momentum behind FATCA and strong
support from the world's most important economies."
France was among the
first countries to champion the underlying goals of FATCA and its
intergovernmental approach in 2012. The agreement was signed today by U.S.
Ambassador to France Charles H. Rivkin and French Finance Minister Pierre
Moscovici.
"The signing of this agreement marks an important step forward in the
collaboration between the United States and France to combat tax evasion," said
Ambassador Rivkin.
FATCA seeks to obtain information on accounts held by U.S. taxpayers in other
countries. It requires U.S. financial institutions to withhold a portion of
payments made to foreign financial institutions (FFIs) who do not agree to
identify and report information on U.S. account holders. FFIs have the option
of entering into agreements directly with the IRS, or through one of two
alternative Model IGAs signed by their home country.
The IGA between the United
States and France is the Model 1A version, meaning that FFIs in France will be
required to report tax information about U.S. account holders directly to the
French government, which will in turn relay that information to the IRS. The
IRS will reciprocate with similar information about French account holders.
In addition to the 10 FATCA
IGAs that have been signed to date, Treasury has also reached 16 agreements
in substance and is engaged in related conversations with many more
jurisdictions.
Have Unreported Foreign Bank Accounts or Companies?
The U.S. Department of the Treasury today announced that the
United States has signed an intergovernmental agreement (IGA) with France to
implement the Foreign Account Tax Compliance Act (FATCA). Enacted in 2010,
FATCA aims to curtail offshore tax evasion by facilitating the exchange of tax
information.
With today's agreement, 10 FATCA IGAshave been signed to
date.
"France has been an enthusiastic supporter of our effort to promote global
tax transparency and critical to drafting a model of FATCA implementation," said
Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. "This
agreement demonstrates the growing global momentum behind FATCA and strong
support from the world's most important economies."
France was among the
first countries to champion the underlying goals of FATCA and its
intergovernmental approach in 2012. The agreement was signed today by U.S.
Ambassador to France Charles H. Rivkin and French Finance Minister Pierre
Moscovici.
"The signing of this agreement marks an important step forward in the
collaboration between the United States and France to combat tax evasion," said
Ambassador Rivkin.
FATCA seeks to obtain information on accounts held by U.S. taxpayers in other
countries. It requires U.S. financial institutions to withhold a portion of
payments made to foreign financial institutions (FFIs) who do not agree to
identify and report information on U.S. account holders. FFIs have the option
of entering into agreements directly with the IRS, or through one of two
alternative Model IGAs signed by their home country.
The IGA between the United
States and France is the Model 1A version, meaning that FFIs in France will be
required to report tax information about U.S. account holders directly to the
French government, which will in turn relay that information to the IRS. The
IRS will reciprocate with similar information about French account holders.
In addition to the 10 FATCA
IGAs that have been signed to date, Treasury has also reached 16 agreements
in substance and is engaged in related conversations with many more
jurisdictions.
Have Unreported Foreign Bank Accounts or Companies?
Multi-national families have numerous issues
associated with Nonresident Alien Parents who are considering transferring
their wealth to their U.S.-resident children. The Nonresident Alien Parents’ goal
is to pass the assets to the children when the surviving parent dies, and
ensure that successive wealth transfers to future generations are made without
U.S. estate tax, or generation-skipping transfer tax while minimizing U.S.
income tax on investment income.
Residence of a Trust
A
trust will be considered domestic
if:
(i)a U.S. court can
exercise primary supervision over trust administration (the "Court Test”),
and
(ii)U.S. persons control
all substantial trust decisions (the "Control Test").
All
other trusts are foreign.(Treas. Reg.
§§ 7701(a)(30)(E) & 7701(a)(31)). These
trust residency definitions are effective for taxable trust years beginning
after December 31, 1996.
The
regulations contain a "safe harbor" test under which a trust is
considered to meet the Court Test if:
(i)the trust deed does
not direct that the trust be administered outside the United States;
(ii)the trust is, in fact,
administered exclusively in the United States; and
(iii)the trust is not
subject to an automatic "flee clause" pursuant to which the trust
migrates from the United States in the event that a U.S. court attempts to
assert jurisdiction over the trust's administration.
The
Control Test will be considered to be satisfied if U.S. persons control all
substantial decisions affecting the trust and no foreign person acting in any
capacity can overcome the decisions of the controlling U.S. persons.
A Foreign Grantor Trust
The Nonresident Alien
Parents could create a revocable trust, with the provisions to them for their
lifetime with the remainder to their US children.This trust is fully revocable, until the
surviving parent dies.
As a “Grantor Trust”
the Nonresident Alien Parents are treated as the owners of the trust assets.
This is achieved by satisfying the requirements of IRC §672(f).The simplest way is to make the trust fully
revocable by the Nonresident Alien Parents (IRC §672(f)(2)(A)).
The Nonresident Alien Parents’
have no exposure to U.S. income or estate tax, unless they hold U.S. assets in
the trust.
Alternatively, the
same structure could also be used to avoid solely US Gift and Estate Taxes by
having the trust own a foreign corporation, which in turn owns U.S. stocks and
bonds, U.S. real estate or other U.S. situs assets; however the US situs assets
would be subject to US income tax on income produced from these investments.
Upon Death of Nonresident Alien
Parents - Foreign Trust Becomes a
Non-Grantor Trust
The trust is designed
to continue as revocable until after both parents have died. After the death
of the last parent to die, the beneficiaries are the U.S-resident children and
grandchildren. At that point for US tax purposes it will be considered as a
“Foreign Non-Grantor Trust,” because it is a foreign trust which is managed outside
the United States (IRC §7710(a)(30)(E)).
For U.S. income tax purposes, a foreign Non-Grantor trust is only subject to US
tax on its US source income and foreign source income is not subject to US tax.
However, foreign source income will be subject to tax when the U.S. beneficiary
receives a distribution of trust income. For estate tax purposes, the
trust assets will receive a step-up in basis to fair market value calculated at
the time of the surviving parent’s death.
The Throwback Rule
The tax-free accumulation of foreign source
income inside a this Foreign Non-Grantor Trust, is subject to the “Throwback
Tax” (IRC Sec. 667). Throwback Rules apply when a foreign trust makes an “accumulation distribution” to a
United States beneficiary and that trust has “undistributed net
income” from one or more of its preceding taxable years.
IRC Section 665(b) defines an “accumulation
distribution” as any distribution of “any other amounts properly paid or
credited or required to be distributed” to the beneficiary, to the extent that
it exceeds both the trust’s distributable net income for that year (reduced by
any amount required to be distributed currently) and the trust’s net accounting
income for the year.
All Distributions of “Accumulated Income” are
taxed at:
Ordinary Income Rates and
Subject to an Interest Charge for
Failing to Pay Tax in Prior Years.
There is no way to
efficiently accumulate income for future generations of U.S. resident
beneficiaries with a Foreign Grantor Trust.
Throwback Rule -
Planning
One solution to the throwback rule is to
eliminate the Foreign Non-Grantor Trust, as soon as possible, by domesticating it. The throwback
rules only apply to Foreign Trusts. This can be achieved by:
1.Transfering all of the
administrative powers to a U.S.‑resident trustee and bring the trust within the
reach of U.S. courts, which satisfies the requirements of the "Court
Test."
2.Alternatively, the
assets contained in the Foreign Non-Grantor trust can be distributed to a new
domestic trust with similar distribution provisions.
You now have a domestic irrevocable trust, also known as a dynasty
trust, that is funded with assets carrying step-up basis as of the date of
death of the surviving parent.
A second solution to the throwback rules involves
electing to have the Non-Grantor Trust treated as part of the Nonresident
Alien Parents' estate. If
both the executor (if any) of an estate and the trustee of a qualified
revocable trust elect the treatment provided in IRC §645, such trust shall be
treated and taxed as part of such estate (and not as a separate trust) for all
taxable years of the estate ending after the date of the decedent’s death and
two years after surviving spouse's death.
Non-US source income and
capital gains realized by the electing trust and distributed to the US
Beneficiary can be received by the US Beneficiary entirely tax-free. Furthermore, the
Us Beneficiary is considered to receive “corpus” of the estate of the
decedent, rather than DNI.
These are just a few general alternatives for Estate Tax Planning for Cross-Border Families and Foreign Nationals. Your actual Estate Tax Planning for Cross-Border Families needs to be customized to address your particular family
situation.
U.S. District Judge Kimba M. Wood of the Southern District of New
York entered an order on Nov. 7, 2013, authorizing the IRS to issue summonses requiring:
Bank of New York Mellon (Mellon) and
Citibank NA (Citibank) to produce information about U.S. taxpayers who may be evading or have evaded federal taxes by holding interests in undisclosed accounts at Zurcher Kantonalbank and its affiliates (collectively, ZKB) in Switzerland.
U.S. District Judge Richard M. Berman of the Southern District of New York entered an order Nov. 12, 2013authorizing the IRS to issue summonses requiring:
Mellon, Citibank,
JPMorgan Chase Bank NA (JPMorgan),
HSBC Bank USA NA (HSBC), and
Bank of America NA (Bank of America) to produce similar information in connection with undisclosed accounts at The Bank of N.T. Butterfield & Son Limited and its affiliates (collectively, Butterfield) in the Bahamas, Barbados, Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland, and the United Kingdom.
In these actions, the Court granted the IRS permission to serve what are known as "John Doe" summonses on Mellon, Citibank, JPMorgan, HSBC, and Bank of America.
The IRS uses John Doe summonses to obtain information about possible tax fraud by individuals whose identities are unknown. The John Doe summonses approved today direct these five banks to produce records identifying U.S. taxpayers with accounts at ZKB, Butterfield and their affiliates, including other foreign banks that used ZKB and Butterfield's U.S. correspondent accounts at Mellon, Citibank, JPMorgan, HSBC, and Bank of America to service U.S. clients.
This includes the names of taxpayers who had an account with CIBC FirstCaribbean International Bank over an eight-year period ending Dec. 31 without disclosing it to the IRS. It is too soon to say how many U.S. citizens held undeclared accounts at FirstCaribbean or what penalties they may face, Justice Department spokeswoman Dena Iverson said Nov. 12, 2013. FirstCaribbean does not have any branches in the United States but it has what's known as a correspondent account with Wells Fargo that allowed U.S. citizens to do business with the bank.
The U.S. obtained the order from a judge Nov. 12, 2013.after an IRS revenue agent reviewed information from 129 people who voluntarily came forward to disclose offshore accounts and decided further scrutiny of FirstCaribbean was warranted.
"These cases once again demonstrate the department's resolve to uncover and identify taxpayers who tried to hide money overseas as a way to avoid federal taxes," said Assistant Attorney General Keneally. "These John Doe summonses will provide information about individuals using financial institutions from Switzerland to the Cayman Islands to Hong Kong to avoid their U.S. tax obligations. U.S. taxpayers still holding accounts who have not come clean should come forward and do the right thing before it's too late."
"Today's action show that the use of foreign banks for tax evasion remains a high investigative priority of this office and U.S. citizens should understand that loud and clear," said U.S. Attorney Bharara. "
By issuing these John Doe summonses, we continue our joint efforts with the IRS to identify and hold accountable those who try to evade their legal responsibility to pay taxes."
"International issues remain a major focus for the IRS, and we are continuing our efforts to fight tax evaders who use offshore accounts to skirt the law," said IRS Acting Commissioner Werfel. "These John Doe summonses for correspondent account records show our determination to pursue evaders using offshore accounts, even if the person hiding money overseas chooses a bank that has no offices on U.S. soil."
IRS Offshore Voluntary Disclosure programs and initiatives enable U.S. taxpayers to resolve their tax liabilities and minimize their chances of criminal prosecution by voluntarily disclosing previously undisclosed foreign accounts and income.
To date, U.S. taxpayers have identified 371 previously undisclosed accounts at ZKB and 81 such accounts at Butterfield. In addition, a number of U.S. taxpayers with beneficial ownership and control over funds held in accounts at ZKB and Butterfield have admitted failing to report income earned from their offshore accounts on their federal tax returns.
The IRS has reason to believe that other U.S. taxpayers who held or presently hold similar accounts at ZKB, Butterfield, and their affiliates have done the same in violation of federal tax law. In December 2012, three employees of ZKB were indicted for conspiring with U.S. taxpayers and others to hide at least $423 million from the IRS in secret Swiss bank accounts.
Federal tax law requires U.S. taxpayers to pay taxes on all income earned worldwide. U.S. taxpayers must also report foreign financial accounts if the total value of the accounts exceeds $10,000 at any time during the calendar year. Willful failure to report a foreign account can result in a fine of up to 50 percent of the amount in the account at the time of the violation.
Have Unreported Foreign Bank Accounts or Companies?
According to an “activity” report from the U.S. Embassy in Bern,
Switzerland, long-time Swiss resident Tina Turner”
was in the embassy Oct. 24 to sign her “Statement of Voluntary Relinquishment
of U.S. Citizenship under Section 349 (a)(1) of the INA” — the Immigration
and Naturalization Act. She has merely 'relinquished' her US citizenship
rather than formally 'renouncing' it, by adopting citizenship of her long-time
home Switzerland.
She apparently hopes to avoid the USA's exit
tax on all her worldwide property, but she will be disappointed!
Tina is an “expatriate”, and it is safe to guess that she has enough assets so that she “meets the requirements of 26 USC § 877(a)(2)(A)”. Therefore, she meets the two prongs of the test to be a “covered expatriate," who is subject to an Exit Tax!
Need Advice On "Should I Stay or Should I Go"?
Contact the Tax Lawyers At Marini & Associates, P.A.
UK Prime Minister David Cameron made the following
announcement in the House of Commons: ‘I do not think it is fair any longer to
refer to any of the Overseas Territories or Crown Dependencies as tax havens.
They have taken action to make sure that they have fair and open tax systems’.
The Prime Minister's comments follow the progress made on tax transparency at the G8 and G20 summits, and come just weeks after the publication of an extensive report highlighting Jersey’s overall value to the UK economy. The Isle of Man government has welcomed comments releasing the Crown
dependencies and overseas territories from their reputation as tax havens.
Have a Secret Account in One of the UK Tax Havens?
