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IRS Twists the Arms of Overseas Account Holders

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HS - Jason Hartman Income Property InvestingEvery year, there are at least a few hundred people who get tired of one thing or another about America, often taxes, and decide to renounce their citizenship. Reported by the media as nothing more than malcontents and rabble-rousers who don’t know how good they have it, the raw totals of these expatriates have taken a spike this year, from a 2011 total of 1,781 up to 2,369 this year with still a month and a half to go.

Third quarter numbers from the Treasury Department’s published list shows that 560 people either renounced their citizenship or were long-term residents who turned in their green card. Taxpayers who expatriate aren’t required to give a reason, but some experts point to the federal government’s recent toughening stance regarding American citizens who have assets or accounts overseas as a possibility.

The Foreign Account Tax Compliance Act, scheduled to take effect next year, requires foreign institutions to report account information about US taxpayers to the IRS. Even long-time bastions of secrecy like the Swiss banking system have yielded to pressure. As far as individual account holders, the penalties for not reporting assets can be severe, as much as 50 percent of the account balance during a year.

For years, the whole idea of overseas tax shelters was essentially a non-issue to the IRS. Prior to 2009, there was little enforcement of laws that were already on the books. But during that year, a massive Swiss bank by the name of UBS AG quietly admitted it aided US taxpayers in hiding assets abroad. A $780 million dollar fine paid avoided criminal charges but the more significant part of the escapade was the list of 4,000 account holders the bank turned over to American officials. Just like that, centuries of vaunted Swiss banking secrecy went up in a figurative poof of smoke.

Fallout from the Swiss mea culpa has been substantial. In an effort to avoid criminal prosecution perhaps, more than 38,000 US taxpayers have contacted the IRS to disclose offshore accounts and pay more than $5.5 billion in back taxes, interest, and penalties. While no one knows for sure, some estimates say that amount may include only half of the scofflaws out there.

The Internal Revenue Service has remained tight-lipped, declining to comment to media requests on the issue. Meanwhile, for those who make it a practice to stash money in accounts outside the United States, the long arm of the tax man just got a little bit longer.

Jason Hartman reminds us that Uncle Sam ALWAYS gets his cut. (Image: Flickr | kecko)


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