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Offshore account reporting rules force hard decisions

A financially strapped U.S. government is going after the taxation of offshore accounts like never before. The goal is supposedly to prevent tax evasion. But there is legitimate concern that the IRS is being so aggressive that financial dealings with the rest of the world could be harmed.

For Texas clients with foreign bank accounts, and others around the country with offshore holdings, are stakes are high. Indeed, all Americans have an interest in how U.S. tax rules could affect the world economy. After all, no one wants overly restrictive rules to be the blow that kills the goose that laid the golden egg of growth in the global economy.

Consider just one example: an American citizen who lives in Switzerland and owns a business there, yet is considering renouncing his citizenship. The man served in the U.S. Army and served in the first Gulf War. After his deployment ended, he settled in Switzerland and started a photography business there.

The European banks he deals with are by no means happy about the IRS's insistence that they disclose the assets held by Americans in those banks. Of course, the Report of Foreign Bank and Financial Accounts (FBAR) has been a requirement for U.S. citizens for years.

But the U.S. government is now trying to use a new law called the Foreign Account Tax Compliance Act (FATCA) to force overseas banks to play a role in checking up on American depositors. There may be serious financial penalties for those banks if they refuse to comply, depending on the terms of agreements their governments may have reached with the U.S.

It cannot be good for the global economy to have an American small business owner who lives overseas to be considering forfeiting his citizenship due to onerous FATCA reporting rules.

Source: "European banks shut Americans out over U.S. tax rules," USA Today, Bill Hinchberger, 9-27-12

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