I want to apologize for posting bad news at this time of year, when I truly hope that all our readers will get to spend some peaceful, stress-free, quality time with their families. In fact this bad news does not come as a great surprise to us, but we have just been made aware of it and I feel it is my duty to pass this on as soon as possible.
The ‘clear and present danger’ from this bad news is to Americans, but this matter is very much of global significance for two reasons: first, where America treads, other countries like the UK, Australia etc tend to follow. And second, this is all related to America’s most daring extra-territorial legislation ever, FATCA (the Foreign Account Tax Compliance Act) that aims, seriously, to draft all banks and other financial institutions in the rest of the world as unpaid spies and tax collectors.
There can be no doubt at this point that the US government is serious in its wish to know everything about everything you own, anywhere in the world. The only reasons they could legitimately need this information would be for capital or exchange controls, and the imposition of a wealth tax.
A wealth tax, for those who are not familiar with the term, is a kind of tax imposed in certain European countries – France being the most prominent example – where the tax is on the savings and capital of citizens, irrespective of income. It is not like income tax that you only pay on profits. Wealth tax is a form of tax that has never been known in the US.
So what is this immediate cause for concern? The new reporting guidelines that we have just been made aware of.
REPORTING REQUIREMENTS BECOME MUCH MORE INTRUSIVE: INTRODUCING FORM 8938
The American IRS and Treasury Department have just published guidance notes regarding a new form, that will replace the old FBAR (Foreign Bank account Reporting) form TDF 90-22.1 that all Americans with foreign bank accounts are (one hopes) familiar with.
This is not an IRS form. Collecting the expanse of information requested in this form would clearly be outside the limits of the IRS’s constitutional remit, which is to ensure collection of taxes.
Neither is it a Treasury Department form like the old FBAR form. The Treasury Department’s remit is amongst other things to prevent money laundering, and it was under that guise that the FBAR form was required.
Form 8938 is a joint IRS and the Treasury Department that demands complete information on all of your foreign assets – no longer just offshore bank accounts.
The exact terminology used on the FBAR form and its accompanying notes often left open to debate what constituted a “financial account.” For example, it was never really clear whether gold bullion stored offshore in a vault constituted a “financial account.”
The notes accompanying form 8938, however, make it clear to us that the US government is no longer satisfied with taxpayers merely filing their taxes accurately and paying on time. They now want to know everything about everything you own, even if it is not taxable. The sheer scope of this invasion of privacy is just breathtaking. For readers with offshore assets, the old questions of definition have been rendered moot with form 8938.
There are some exceptions – for example for Americans living overseas, or for those with very small amounts overseas. If you want to read more on the exact details, we suggest you start with this article in Mountain Vision.
WHERE TO FROM HERE?
Are the concepts of offshore asset protection, offshore investing and offshore banking for Americans dead? Should Americans at this stage throw in the towel, give up the fight to protect what is rightfully theirs, keep all their assets at home in dollars and rely on the US government to ‘protect’ them?
I think you know my answer to that already. And if you have found this article and read this far, the chances are you agree with me.
As much as we like American values and what America originally stood for, it’s clear that the US government doesn’t have much faith and credit left anymore. The US is already bankrupt. Anyone who thinks politicians on either side have the capacity to ‘solve’ this is living in a fantasy.
Keeping your assets entirely in the US or in US dollars at this point would be equivalent to financial suicide. Diversification into hard assets, outside the grasp of a hungry US government, is the only way to protect your savings and business. There’s a lot of information on the best and safest ways to do this scattered around the Q Wealth site, with more specifics in the Members’ Area and in our quarterly Q Wealth Report.
At Q Wealth our focus is always on positive solutions. This one, we admit, is difficult to solve. We have said for a long time that we believe a point will be reached, at some point in the not too distant future, where compliance will be impossible. But, let’s stay positive… here are our thoughts.
THE WATER IS GETTING HOTTER
You’ve certainly heard the boiling frog analogy. If a frog is thrown straight into hot water, it will jump out to save itself. But if you put it in cold water and slowly turn up the heat, it will eventually boil to death.
You can see how this analogy fits with what is going on now. The heat has just been turned up a notch on all Americans who have assets worth protecting, or even the American dream of building up such assets one day.
At the same time, another notch I won’t get into much depth on here is SOPA, the Stop Online Piracy Act. This is effectively a mechanism for taking away freedom of expression on the internet, dressed up as a way to protect American consumers from all those horrible foreigners who would try to rip them off online. It is actually a law that would allow the US government to censor the internet, similar to China’s internet censorship mechanisms… it’s just a bit more subtle and it transfers the cost and compliance burden away from the government onto the shoulders of already-struggling private American businesses.
Yes, dear readers, the water is getting really, really hot! Some of America’s smartest frogs have already jumped out, obtained foreign citizenship and expatriated. That’s the only way of making a clean break and legally escaping all the hassles. But for most people, this option is still not practical.
Kevin Brekke writing in Mountain Vision says:
Whatever the IRS has in store for US taxpayers, the only way to fight back is to keep what you have. And to do that means complying with reporting requirements no matter how offensive, intrusive, maddening, or unjust they are. Penalties are now defined by the IRS as a revenue raising measure. The new mindset is clear: If we can´t tax them, we will penalize them.
Unfortunately, a new era for individual privacy is upon us. We must sacrifice our financial privacy for our financial security. We will accomplish this by staying compliant with reporting requirements and safeguarding our wealth from confiscation via seizure and penalties.
We will prevail by keeping our wealth outside the US and invested in assets that will protect and grow our wealth. That is the mission of today´s international investor.
We at Q Wealth would agree with this. As long as you can stay compliant you should, as penalties for non-compliance are substantial.
Fortunately, a lot of this is for show, designed to discourage people from protecting their assets overseas. There are still things you can do to protect yourself. And as a responsible individual, you not only can do these things, you should!
We regularly write about these solutions, and if you haven’t already done so, you should definitely sign up for our free weekly newsletter, Q Bytes, and read our free reports. If you like what you see, then just $87, the price of a good lunch, will get you a year’s membership to our Members’ Area, where you will find lots of exclusive, up to date offshore banking, asset protection and overseas investing information.
We also suggest that if you are really serious about protecting yourself, your family and your assets, you should definitely come to visit us at BFI’s Inner Circle Briefing at Atlantis, Paradise Island in the Bahamas at the end of January 2012. At the time of writing, there are still places available. For your invitation, contact the Q Wealth offices or contact BFI directly. Please mention Q Wealth in order to qualify for a discount on the normal registration fees.