Don't get me wrong – I hate government interference in my daily life. I hate how the state slithers into every aspect of our lives, takes our production in the form of taxes and generally bullies us around however they like.
No doubt you do too.
And make no mistake: I go out of my way to avoid them as one would the plague, as much as I possibly can. I don't want them to know anything about how I live my life or what I choose to do with my assets.
And in a perfect world, I could hide my assets from their Sauron-like eye. I could extend a certain digit and tell them where to stick their 1040. And in this perfect world, they would just go away.
But that's not the world we live in, and not playing by the rules carries some serious consequences.
That is especially true when it comes to the Foreign Account Tax Compliance Act (FATCA), which takes effect in just under a year from now.
If you weren't aware, FATCA is the law that requires virtually all "foreign financial institutions" to turn over all information about their U.S. clients.
Signed into law on March 18, 2010, it's the single biggest reason why Americans are now treated as pariahs by the international financial system.
It's just not worth the hassle for them to comply.
Not surprisingly, snake oil salesmen have lined up to offer some pretty sketchy "solutions" that promise to restore an American's right to privacy in offshore banking (presumably so you can evade taxes).
For example, a few weeks ago, I got a call from a lawyer in Asia who told me that Chinese banks would still open accounts for U.S. persons because "China doesn't care about FATCA." The banks didn't even ask for U.S. social security numbers, he said. If a U.S. taxpayer opened an account in China, he claimed, it would be completely secret even after FATCA comes into effect.
Then, just last week, a client sent me an article written by a financial advisor in Panama. The article described a "loophole" in the FATCA agreement that exempts accounts smaller than $50,000 from reporting. It suggested that a U.S. taxpayer who wanted to preserve financial privacy merely needed to open multiple accounts in Panama, and keep all of them under the $50,000 threshold.
They are both interesting ideas, but follow them and you're asking for a world of trouble.
First, you're just asking to be blackmailed. The bank knows any U.S. depositors it has may not be reporting the account to the IRS. If you're a tax cheat and your offshore bank steals your money, who will you call for help?
Second, I'm sure that the IRS will certainly target these "non-compliant" banks for surveillance. And as we've found out recently, they generally don't miss much. So you might get caught anyway.
Third, if the bank eventually succumbs to IRS pressure and becomes FATCA compliant, then its U.S. clients suddenly will have details of their "secret" offshore account spilled to the taxman.
So, my recommendation? If someone tries to sell you on such an idea, run the other way.
I don't like FATCA and I like complying with its convoluted requirements even less. But, trying to cheat the system will open you to many more problems than the one you were trying to solve. As with most things in life, if it sounds too good to be true, it probably is.
Mark Nestmann
Nestmann.com
