Good Overview Article on Financial Issues for Americans Living Abroad (4/5/13)

Paul Sullivan of the New York Times yesterday offered a good overview article titled Overseas Finances Can Trip Up Americans Abroad (NYT 4/5/13), here.  He covers a range of issues that American's living or working abroad should consider, including the offshore account reporting maze that occupies so much of our attention on this blog.

Most of the offshore account issues are familiar to most readers of this blog; but I will quote that part along with the lead-in, but urge readers to read the article because it deals with other issues as well:

LIVING and working abroad may sound romantic. But having a financial life in more than one country — if one of those countries is the United States — is becoming increasingly complicated.\ 

Managing an international financial life was once solely the purview of the superrich, who jetted around the world. But given the still-high unemployment rate in the United States, opportunities for middle-class jobs abroad, in areas like finance, oil and construction, are becoming more appealing.\ 

By taking those jobs, though, many middle- and upper-middle-class Americans have found it more and more difficult to comply with requirements on reporting the existence and value of bank accounts overseas and to reconcile the taxes of different countries. 

At the same time, Americans from immigrant families who have bank accounts in their home countries that they may have overlooked are being swept up by the same laws used to ferret out millionaires and billionaires stashing money in secret Swiss accounts. The Internal Revenue Service has increased its examination of such accounts, lawyers said, with serious penalties for those who have not reported them. 

So how should Americans working abroad or with a financial life in two countries manage their finances?

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ACCOUNT COMPLICATIONS While new American reporting requirements are meant to catch tax evaders, they are causing problems for people simply making a living abroad. 

Ms. Serrato said her group had heard of many instances of Americans abroad having their accounts closed in the United States because the banks did not want to deal with the reporting requirements. On the other end, she has heard that opening accounts in different countries has become more difficult. 

“We support the crackdown on tax evasion, but there has been a lot of blanket legislation put out there that can hit the unknowing or the unwitting,” she said.
Foreign pension plans, for instance, are not considered tax-exempt under American law. Americans are required to report the plans to the I.R.S. as they would bank or investment accounts. Failure to do so carries harsh penalties. 

“If you’re a person who didn’t know your pension account needed to be reported but you reported your checking and savings account,” Ms. Serrato said, “now you’re faced with criminal penalties for a filing error and you could end up paying a penalty that could wipe out 50 percent of that account.” 

The I.R.S. put a streamlined procedure in place in September for people working abroad who owe less than $1,500 in back taxes on these plans. People who owe more than that will be treated as “higher risk” cases, the I.R.S. said. 

There is now a third, voluntary disclosure program in place for people with unreported money offshore. But now that the offshore inquiry has gone beyond traditional tax havens like Switzerland, lawyers said that immigrants and their children were coming under scrutiny. The increased attention on the Middle East and Asia for tax evaders — or terrorist financiers — is raising concern among people who have accounts in their home countries that they never thought to declare in the United States. 

Robert J. Kipnees, a partner at the law firm Lowenstein Sandler, said he recently worked with two clients who had accounts at Bank Leumi in Israel, after the bank notified them that the I.R.S. was asking for all of its account information on American citizens. 

“It’s not just high-net-worth people,” he said. “You have people who are first- and second-generation Americans whose families left money behind in the old country and they did not know they had an interest in the account.”

I hope readers will recognize some degree of hyperbole in discussions such as these.  For example, the threat of prosecution for a taxpayer not reporting foreign pension accounts although reporting all other financial accounts is not true as presented unless, and I doubt even then, the Government had iron-clad, 100% certified proof that the taxpayer knew he should have been reporting the foreign pension accounts and made a deliberate choice not to in order the cheat on his taxes.  That type of proof almost never exists.  Conversely, prosecutions for tax crimes and FBAR crimes always have a host of other bad facts.  Subject to the hyperbole phenomenon, the article is good.