Gyroscopic Investing

From what I have found, the US gov't will soon be forcing financial institutions to withhold 30% of funds transferred overseas, unless the overseas operation enters into an agreement with the IRS to provide all sorts of details.  This is a gross simplification.

Here is one article I found on the topic: http://www.fulbright.com/index.cfm?fuse ... e_id=494#1

The article seems legitimate.

In my mind, this is closely related to another thread about geographic diversification as it will have a direct impact on achieving the same.

I would like to start a discussion, with some questions to kick it off.

1. Is this in fact legitimate?
2. What proactive steps should be considered? (such as opening a foreign brokerage account?)
3. Which ideas should be avoided?
4. Is this a specific scenario why HB recommended geographic diversification? What did he have to say about how this might play out?
5. Have you contacted any foreign financial operations to find out how they will handle accounts by USA persons? (for instance, will your foreign financial institution close your account and/or metal holding?)
6. What are the implications for financial freedom?
7. Thoughts on how this might impact financial markets? (For example, is this a pee-requisite to massive devaluation of the US$)

Clive wrote: The Summary link http://www.irs.gov/businesses/corporati ... 64,00.html off http://www.irs.gov/businesses/corporati ... 67,00.html

(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

Indicates that 30% of GROSS sale proceeds (of US stocks etc) will also be withheld after FATCA comes into effect in January 2013 unless your brokerage or you (as a non US'er) don't provide sufficient information to demonstrate you're not a US'er.

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Thanks Clive. This quote from the IRS website answers question #1. As far as I can tell, this 30% withholding will even apply to any transfer of funds from your USA-domestic bank (by a US person) to a non-compliant Foreign Financial Institution.  From http://www.irs.gov/pub/irs-drop/n-11-53.pdf these withholdings will begin Jan 1 2014.

murphy_p_t wrote: 1. Is this in fact legitimate?

Yes. It's called the FATCA - Foreign Account Tax Compliance Act. A Google search will give you lots of background on it.

2. What proactive steps should be considered? (such as opening a foreign brokerage account?)
3. Which ideas should be avoided?

You must declare all accounts to the IRS and Treasury with the FBAR form once a year. A foreign bank may also have you fill out W9 forms for tax reporting on transactions.

As always, avoid any and all tax dodging schemes promising the world of riches by putting money offshore. They are almost all going to get you in trouble eventually.

4. Is this a specific scenario why HB recommended geographic diversification? What did he have to say about how this might play out?

I have no idea what he'd say. But what I'd say is that I think it is a way for the US to implement capital controls without overtly calling them capital controls. They are putting on very burdensome reporting requirements for all banks that deal with US customers. If the bank also has investments they are selling (such as funds, etc.), then they are layering on SEC compliance and reporting there as well. They are making it very hard for foreign banks to service US citizens.

But as the noose tightens I feel it is more and more important to have some money held outside the country. It is easier to open and maintain an account with tax reporting now than to wait for an actual emergency to happen.

5. Have you contacted any foreign financial operations to find out how they will handle accounts by USA persons? (for instance, will your foreign financial institution close your account and/or metal holding?)

Swiss banks largely won't deal with US persons any longer and many have closed accounts of US persons even when fully reported to the IRS. There are intermediaries that will handle the accounts for you though and do the tax reporting on the bank and your behalf however. But they are layering on additional costs for the service.

6. What are the implications for financial freedom?
7. Thoughts on how this might impact financial markets? (For example, is this a pee-requisite to massive devaluation of the US$)

The impacts for financial freedom are ominous. IMO. There is a wall being built but they have not installed the gates yet. But it makes it a lot easier to close the gate in the future.

As for other markets, it is bad as well. Remember it is rule #1  on legislation that any named law does the exact opposite. So for instance the Bank Secrecy Act of the early 1970s eliminated all bank secrecy. The Patriot Act allows the government do to a lot of very unpatriotic things. And the HIRE act implements capital reporting requirements that are likely to reduce investment in the US and make less jobs available.

On a somewhat related note I just learned the other day that if you retire abroad your social security check is subject to a 30 percent withholding also.

I guess the idea is to make sure you are sufficiently motivated to file a tax return.

Why is the government giving such advance notice of the impending capital controls? Is it simply to maintain the sense of legality? I haven't seen anyone suggesting that many foreign institutions will be getting on board with the IRS. If so, will this have the opposite effect, in that Americans will move funds offshore ahead of 2014? It would seem to be more effective they simply announce a fait accompli, perhaps in conjunction with a bank holiday & market shutdown of several days. Even in Argentina, it seems the law of unintended consequences is coming to the fore with their recently enacted capital controls.

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