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Staying Compliant With FATCA

The Prince, The Oil Heiress, And A Tax Legacy For Us All

In 1964, Prince von Furstenburg was invited by the founder of Texaco to a ball in Houston. At the ball he meets a beautiful young woman, 18-years-old and the daughter of the founder. The prince falls in love at first sight, proposes marriage that night, and flies the girl back to Austria with him…without Dad knowing. The prince and the girl get married in Austria.

When the father finds out what his son has done, he and his tax advisors realize that the new daughter-in-law is sitting on one of the biggest fortunes in the world.

They go to her and say, “Give up your U.S. citizenship, sell your stock for US$800 million, and in Austria you will owe no capital gains tax. You will have it all tax-free.”

The new princess expatriates, sells her stock (again, without talking to Dad), goes back to Austria, and lives happily ever after with her loving prince husband.

Unfortunately, that’s not the whole of the story. Guess who happens to be the best friend of the father of the heroine in our tale? Lyndon Johnson.

So the father crawls into the White House complaining to his buddy. LBJ sics the IRS on the girl. LBJ and the IRS declare: You cannot expatriate in order to avoid income tax. The case goes to the Supreme Court, and the princess wins. She and princey walk away with US$800 million.

Ever since, the IRS has gone after expatriate taxes. Now, we have to pay an exit tax to get out of the United States or its citizenship.

This little story explains why the government wants to know about absolutely every detail of what’s going abroad and why you need to be so careful about filling out the forms the IRS demands of you. This isn’t a volunteer situation.

The point of FATCA is to filter all money going out of the United States. Unless the bank is the same on both ends of any transaction over US$50,000, a 30% withholding is to be imposed. In theory, it is that simple. In practice, of course, it’s a big mess.

Why are foreign banks complying? Because the U.S. dollar is still the global reserve currency. Everything goes through the United States, even if it doesn’t have to do with the United States. Money going from Austria to Italy goes to NYC first.

The entire exercise is a waste of money. And it’s sad. But there’s no way around it now. It is what it is, and it doesn’t need to hurt you. As Lief Simon succinctly put it when he brought me to the stage this morning, ours is no longer a hide-and-seek world. Now it’s show and tell. Your only option is to comply. Report and comply. Unless you want to go to jail.

However, and this is the critical point: This truly means nothing for offshore strategizing and structuring. You have legal, compliant options. None of what we are telling you about here at this conference this week is a tax scam, and nothing we’re talking about breaks any law. I can give you 25 reasons why this was all so important before FATCA, and I can give you the same 25 reasons for why it’s still so important. My advice isn’t changing based on FATCA. My advice is about being smart and being in control of your own money and your own future. FATCA doesn’t have to change any of that.

Chris Braun

 

Continue reading: Best English-Speaking Retire-Overseas Options

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