US Tax Reporting requirements for international accounts and investments

1. New US International Reporting
Requirements
AICPA PFP
12 Jan. 2011
Prof. William H. Byrnes &
Prof. Stephen Polak
International Tax & Financial
Services Graduate Program

3. Compliance Topics
 Foreign Account Tax Compliance Act (FATCA)
 Qualified Intermediary Regime (before and after UBS) (QI)
 1099 major change Jan 1, 2011 reporting for expenditures of $600
or more within a year with any person
 Report of Foreign Bank and Financial Accounts Form TD F 90-22
(FBAR)
 Currency Transaction Reports FINCEN Form 104
 Report of International Transportation of Currency or Money
FINCEN Form 105
 Patriot Act - Suspicious Activity Reports (SARS) for foreign tax
evasion … see Pasquantino v. United States (2005)

4. FACTA in brief
Foreign Financial Institution (FFI) provide IRS any US
persons invested in accounts outside the US
Foreign entities provide IRS any US substantial
(10%) owners information (0% if invest vehicle)
All FFIs and FEs with payments from US
Requires Sec. 1471(b) agreement with IRS
– (like Sec. 1441 QI agreement but more bite)

5. FACTA in brief
Requires 30% w/h on all US source income including
all types of sales if no agreement with IRS
Reverse onus – burden on FFI / FE to prove not US
All persons must prove to FFI / FE NOT a US person,
otherwise a US person – UBO standard
FFI / FE must EDD the non-US persons
Jan 1, 2013 (b/c hundreds of thousands of new
FATCA agreements)

6. FACTA in brief
Excluded from reporting by FFIs & FEs
– Public listed companies
– Individual Retirement Plans in rare situations
– Banks
– REIT
– TEOs
– ECI

7. FACTA in brief
Report must contain
– Name / address / TIN
– Account No(s) / Balance(s)
– Gross transactions (receipt/dep/payment/withdrawal)
Can elect to report like US-FI (1099s)
Or w/h and close account

8. FACTA in brief
Penalties
– Personal liability for w/h tax (x2)
– 40% of w/h accuracy related penalty
– 75% of w/h if civil fraud
– Lack of w/h = “uncertain tax position” FASB No. 48

9. QI differences
QI differences
Expanded application of reporting
– (names + specific account in(s)/out(s))
Look through
Expanded application of reporting persons
Expanded application of reportable transactions
FFI cannot determine customer w/h pools
Only approx. 5,500 QI v. 100,000s of FFIs and FEs

10. FIRPTA
See IRS website
http://www.irs.gov/businesses/small/international/
article/0,,id=120943,00.html
Form 1099-S, Proceeds From Real Estate
Transactions
 Form 8288-A

11. Other Survey Topics
 FBAR
 Currency Transaction Reports
 Report of International Transportation of Currency or
Money
 Suspicious Activity Reports (SARs)
… see Pasquantino v. United States (2005)
 1099 major change
 Credit card merchant 1099

12. Typologies & Trends Part I
Securities
Trade Based
Counterfeit Trade
Sports Clubs (and Equestrian)

13. Typologies & Trends Part II
Child Pornography & Human Trafficking
Government Contracting / Bribery / PEPs
Internet Based Market Systems
– Amazon, E-Bay, Second-Life & World of Warcraft

14. Topic II: I - Securities
If incidence of Opaqueness relative to Transparency; with
higher Liquidity is an indicator for Launderer, then
Securities
•GEM, AIM, B®IC
•Hedge Funds
•Audit firms, banks, law firms = $100B in tax losses = $T
alleged w/o business purpose and w/o risk, IMAGINE
what launders can do…

15. Topic II: I – Trade Based
Transfer Pricing
L.A. goods hP a USA
Dump (harm market price
& higher risk detection)
Smurf purchases to avoid
CTRs
Switzerland  USA $31B
Russia  USA $9B

16. Topic II: I – Counterfeit Trade
• 2% - 7% of World Trade $200B - $650B
• CF currency
• CF goods perceived by BRIC as less harmful than drugs
This weakness in perception can allow substantial $
flows from other crimes
(B movie industry)

17. Topic II: I - Equestrian
Equestrian > Hollywood
Economic Impact = $25B / $100B indirect
# of Americans Involved = 7.1 Million
# of Full-Time Jobs = 1.4 Million
# of Horses = 6.9 Million
Total Taxes Paid = $1.9 Billion

18. Topic 2: II - Trends
• Child Pornography & Human Trafficking
• Government Contracting / Bribery / PEPs
• Internet Based Market Systems
• Amazon & E-Bay
• Second-Life (Direct) & World of Warcraft (3rd Party)

19. Predictive Modeling
•Neural Networks
•Concept Mapping
•Evolutionary Programming = Genetic Algorithms
http://amlsample.googlepages.com/Securities_and_Trade_ML.html

20. Contact Us for Further Details
See my daily tax and wealth management blogs –
http://www.advisorfyi.com
Contact the International Tax and Financial Services
graduate program
http://www.tjsl.edu/
Contact me http://profwilliambyrnes.com/about-2/