# For US Persons With International Investments/Bank Accounts, Times Are A Changin . .



## vincetruong (May 10, 2009)

For starters, let's clarify that U.S. taxpayers are not only those individuals who are U.S. citizens. If you are a U.S. resident alien, a green card holder and/or someone who lived in the U.S. and for a prolonged period, you also have tax filing requirements no matter where you are currently resident in the world.

For US taxpayers, filing requirements have recently become more onerous, especially if you have unreported international investment accounts and/or bank accounts. As per the Foreign Account tax Compliance Act (FATCA) enacted in 2010, U.S. taxpayers holding non-US financial assets with an aggregate value higher than $50,000 must report those assets to the IRS. This requirement is effective for assets held in tax years beginning on or after 1 January, 2011and failure to report will result in significant fines. This requirement is in addition to the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR) form, which is required when aggregate international accounts are valued above $10,000.

Many U.S. taxpayers have been sold offshore investments by advisors who did not know of, or chose to ignore, U.S. tax filing requirements. The investor was likely asked to sign a disclaimer protecting the investment provider from liability for adverse tax consequences. These investments, often found in the form of regular savings plans, portfolio bonds or whole of life plans, are precisely the type of foreign financial assets that often go unreported. 

And aside from the new filing requirements, these investments will be taxed very egregiously as Passive Foreign Investment Companies (PFICs). Why, then, should a U.S tax person invest internationally if their gains will be taxed at higher rates? It may be because they desire access to internationally based investment options that are not available in the US. For instance, in the US, it would be difficult to find high quality managed futures funds that trade futures on commodities, currencies, etc. It is also difficult to find quality funds that focus on specific countries (especially emerging market countries such as Indonesia or Thailand). Thus, there is the possibility of improved returns using these international platforms, but these returns must be weighed against the tax ramifications and filing requirements.

U.S. persons may wonder how their assets would ever be found out by the IRS. These persons should know that the U.S. has active Tax Information Exchange Agreements with offshore jurisdictions such as the Isle of Man and Guernsey. "Times are a changin' " and as evidenced by the new filing requirements, the IRS is moving towards stepping up their efforts to find those who have unknowingly or intentionally not reported all their foreign assets. The Tax Information Exchange Agreements makes it possible for the IRS to find these persons. In light of all this, it is time to get things in order.


----------



## EnemyMind (Aug 31, 2011)

ahh the IRS, out to take everything they can from you.

If I am correct forming an offshore (non us) company, investing through said company, and then keeping the profit through that companies held accounts (offshore) does not incur a tax liability correct? as long as those funds are not repatriated?.


----------



## sahil80 (Jul 30, 2011)

vincetruong said:


> For starters, let's clarify that U.S. taxpayers are not only those individuals who are U.S. citizens. If you are a U.S. resident alien, a green card holder and/or someone who lived in the U.S. and for a prolonged period, you also have tax filing requirements no matter where you are currently resident in the world.
> 
> For US taxpayers, filing requirements have recently become more onerous, especially if you have unreported international investment accounts and/or bank accounts. As per the Foreign Account tax Compliance Act (FATCA) enacted in 2010, U.S. taxpayers holding non-US financial assets with an aggregate value higher than $50,000 must report those assets to the IRS. This requirement is effective for assets held in tax years beginning on or after 1 January, 2011and failure to report will result in significant fines. This requirement is in addition to the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR) form, which is required when aggregate international accounts are valued above $10,000.
> 
> ...


that stinks man... it seriously sucks!... I hate how IRS fails to tax all these executives of giant companies, who get millions in annual bonuses, and keep on mauling common man for everything they can steal.


----------



## vincetruong (May 10, 2009)

*Holding shares through offshore companies*



EnemyMind said:


> ahh the IRS, out to take everything they can from you.
> 
> If I am correct forming an offshore (non us) company, investing through said company, and then keeping the profit through that companies held accounts (offshore) does not incur a tax liability correct? as long as those funds are not repatriated?.



Unfortunately no. That used to be possible. They've closed all the offshore loopholes that I'm aware of. If the US person owns the company (i.e., more than 50% of the company shares or owned by US shareholders), then it's a Controlled Foreign Corporation and investment income (sub-part F income) will be passed through to the shareholders and taxed on an individual level, even if the company didn't distribute any gains. The tax rate would be at the highest marginal income tax rate instead of the potentially lower capital gains rate.

If the offshore company receives more than 75% of its gross income from investment sources, it will be classified as a Passive Foreign Investment Company (PFIC) and again, taxed at income tax rates.


----------



## vincetruong (May 10, 2009)

sahil80 said:


> that stinks man... it seriously sucks!... I hate how IRS fails to tax all these executives of giant companies, who get millions in annual bonuses, and keep on mauling common man for everything they can steal.


For what it's worth, their radar is especially tuned to the high net worth tax evader these days.


----------



## ash_ak (Jan 22, 2011)

EnemyMind said:


> If I am correct forming an offshore (non us) company, investing through said company, and then keeping the profit through that companies held accounts (offshore) does not incur a tax liability correct? as long as those funds are not repatriated?.


As Vince stated the above is a loophole that has been closed, now (infact for the past few years), its taxable and even if no taxes have to be paid, you would have to report the fact that you have more than 50% ownership in a foreign owned co. 

taxation of Repatriated funds from investment companies (PFIC) is different from regular non-investment cos. like Texaco, microsoft, Ford, etc.


----------



## TallyHo (Aug 21, 2011)

That's not quite true.

Bonuses are declared as income and reported on taxes, and bonuses are taxed at a special rate which is pretty close to 50% when you combine both Federal and State rates (regardless of whether your bonus is $1,000 or $10,000,000). 

The top 1% of wage earners in the US pay over 1/3 of the total income tax revenues.

Companies operate under a separate and rather byzantine tax structure, but the actual wage earners within the company can't evade taxes. 



sahil80 said:


> that stinks man... it seriously sucks!... I hate how IRS fails to tax all these executives of giant companies, who get millions in annual bonuses, and keep on mauling common man for everything they can steal.


----------



## EnemyMind (Aug 31, 2011)

Jeez. Not a good picture. 

Although I have some ideas. What is the way apple and all the larger companies pull this off? Companies owning companies? So no automatic pass through of the gains?


----------



## Andrew James (Nov 6, 2010)

TallyHo said:


> That's not quite true.
> 
> Bonuses are declared as income and reported on taxes, and bonuses are taxed at a special rate which is pretty close to 50% when you combine both Federal and State rates (regardless of whether your bonus is $1,000 or $10,000,000).
> 
> ...


Hi,

It depends a lot on how the bonus is structured but you would currently struggle to get close to an overall 50% tax rate (I realize you said "pretty close") in the majority of instances. Realistically, you're only going to hit somewhere like 46% and that's if you live in NYC - well, more precisely, a NYC tax resident. There's no special tax rate that applies to bonuses (unlike recent developments in the UK).

Regarding Controlled Foreign Corps and PFICs...well, if you end up with a better return on investment, it's probably worth the tax hassle IMHO. Generally speaking, the CFC rules apply where an entity is classed as both a CFC and a PFIC.

As for companies mitigating their tax liabilities, it's simply good tax planning focusing mainly on transfer pricing and utilization of applicable Double Tax Agreements. 

Cheers,

Andrew


----------



## Andrew James (Nov 6, 2010)

EnemyMind said:


> Jeez. Not a good picture.
> 
> Although I have some ideas. What is the way apple and all the larger companies pull this off? Companies owning companies? So no automatic pass through of the gains?


Indirect ownership rules put a line through that quite easily, I'm afraid.


----------



## EnemyMind (Aug 31, 2011)

Interesting stuff.. seems like everything I read up on years ago no longer qualifies. 

Dam shame really. The initial tax break on earned income is still applicable right? 90~k or something if you stay outside the country a certain number of *days out of the year?. 

that at least takes care of a chunk.


----------



## Andrew James (Nov 6, 2010)

EnemyMind said:


> Interesting stuff.. seems like everything I read up on years ago no longer qualifies.
> 
> Dam shame really. The initial tax break on earned income is still applicable right? 90~k or something if you stay outside the country a certain number of *days out of the year?.
> 
> that at least takes care of a chunk.


Yes, you still get that, plus the housing exclusion and if you came from DC, you will likely be able to break your tax residence too. You'd be surprised how far exclusions and deductions can get you. You don't really have to stay out of the US for the 330 days every year like you hear. That's a bit of a myth that has become "Fact" on many internet forums.


----------



## EnemyMind (Aug 31, 2011)

Thanks for that info Andrew, I'm not quite sure what you mean by a break on my tax residence however. 

To clear things up on that end I would most likely just rent my home out here in DC. Unless you were speaking about something else.


----------



## Andrew James (Nov 6, 2010)

EnemyMind said:


> Thanks for that info Andrew, I'm not quite sure what you mean by a break on my tax residence however.
> 
> To clear things up on that end I would most likely just rent my home out here in DC. Unless you were speaking about something else.


Hi, I'm only permitted to make general (hopefully helpful!) tips to people on here for a variety of reasons but I have PM'd you.

Cheers, Andrew


----------



## gbh242 (Aug 30, 2011)

vincetruong said:


> For starters, let's clarify that U.S. taxpayers are not only those individuals who are U.S. citizens. If you are a U.S. resident alien, a green card holder and/or someone who lived in the U.S. and for a prolonged period, you also have tax filing requirements no matter where you are currently resident in the world.
> 
> For US taxpayers, filing requirements have recently become more onerous, especially if you have unreported international investment accounts and/or bank accounts. As per the Foreign Account tax Compliance Act (FATCA) enacted in 2010, U.S. taxpayers holding non-US financial assets with an aggregate value higher than $50,000 must report those assets to the IRS. This requirement is effective for assets held in tax years beginning on or after 1 January, 2011and failure to report will result in significant fines. This requirement is in addition to the requirement to file the Report of Foreign Bank and Financial Accounts (FBAR) form, which is required when aggregate international accounts are valued above $10,000.
> 
> ...


So if I understand correctly if you are US citizen working in Dubai and u make over 90k usd , you will be taxed? So if you made 95k you will be taxed on 5k? is this accurate? Thanks in advance

Sent from my iPhone using ExpatForum


----------



## TallyHo (Aug 21, 2011)

Correct. The $5K will be taxed at the tax rate for someone making the full $95K in the US.

If you're married, your allowance doubles. 



gbh242 said:


> So if I understand correctly if you are US citizen working in Dubai and u make over 90k usd , you will be taxed? So if you made 95k you will be taxed on 5k? is this accurate? Thanks in advance
> 
> Sent from my iPhone using ExpatForum


----------



## vincetruong (May 10, 2009)

TallyHo said:


> Correct. The $5K will be taxed at the tax rate for someone making the full $95K in the US.
> 
> If you're married, your allowance doubles.


It was $91,500 in 2010 and that's per person. So for a married couple, each person gets that allowance separatedly. If husband makes $101,500 and wife makes $50k, the husband still pays tax on the $10,000 and wife is not taxed.


----------

