Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
Yes, the government moves slowly. The Treasury Department has finalized regulations that have been talked about since 2002. Under T.D.9584, U.S. banks, beginning on January 1, 2013, will report the interest earned on deposits held by nonresident alien individuals. This reporting of the interest to the I.R.S., and then to the home countries of those individuals (note individuals, not corporations), has caused a number of nonresidents to start moving their money out of (mainly) a number of Florida banks.
Who could these people be? Cuba’s Castro? Chavez of Venezuela? Assad of Syria?
As noted, it is now only reporting of individuals, not corporations, and there are other loopholes as well, as usually happens with anything the government creates.
So is this reporting a good thing?
Capital, that is money, migrates to where it is treated the best. Don’t you move your savings where the interest rate is the highest? With money, jobs can be created, and economic growth will follow, or vice versa. For many years the U.S. recognized this benefit and welcomed these deposits, and the nonresidents welcomed the safe and tax-free income in the U.S. as well as not reporting it to their home countries. (Ahamdinejad of Iran?)
There are a number of reasons, other than tax-free income, that the money was housed here. Some legitimate reasons would be concerns about kidnappings, violence in their countries, privacy matters, or fear of their own governments, either oppressive or corrupt. A non-legitimate reason might be tax-evasion. (Madoff, who wishes he was in Switzerland?)
The reason this has now been implemented is the $400 billion tax-gap – the difference between the actual tax liability and the amount paid by U.S. taxpayers. This is caused by non-filing (taxes not paid by those with a filing requirement who fail to file), underreporting (taxes underpaid by those who file but underreport what they owe), and underpayment (taxes not paid by those who fail to remit reported amounts owed when due). One part of the tax-gap fix that you may be aware of is the change in the reporting of stocks – the securities companies now have to report the stock cost to the I.R.S. It seems that some taxpayers were inflating the cost of the stock to show less of a profit on their tax returns. (Can you believe it?!)
So now the Treasury Department has reversed the nonresident alien bank deposit policy in hopes of gaining reciprocal disclosures from foreign governments of U.S. taxpayers who are keeping money abroad. (Can you see the line now? China, Mexico, Saudi Arabia.)
Will this work? Watch south Florida over the next year and see if it looks like it is deflating due to the money being withdrawn. Do you hear that? Woosh!
And speaking about closing loopholes, have you seen this video (get ready to be very angry): Loophole for illegal immigrants. Why not ask your Congressional representative what they are doing about this.
Have a good week.
Quip: How come it takes so little time for a child who is afraid of the dark to become a teenager who wants to stay out all night?
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.