The Creeping Financial Lock-Up
by Jeff Snyder
by Jeff Snyder
Recently by Jeff Snyder: Plastic People
J.H. Huebert had an excellent article last Friday about the US attempts to force the Swiss bank, UBS, to divulge information about US account holders to the IRS. These efforts are nothing less than an attack on Switzerland’s sovereignty in the form of its ability to establish and maintain its own banking laws.
This is the kind of arcane financial news that is easy to disregard. When people hear “Swiss bank accounts,” they may brush off the attacks as the problems of the ultra rich. If only we were so “unfortunate” to have this kind of problem to worry about, right? Unfortunately, however, I think we do. I believe that there is far more to this than a temporary, one-time money grab by the IRS from tax evaders. I believe this is also very bad news even for us “wage slaves.”
The day Mr. Huebert’s article appeared, the Justice Department announced that the US and Switzerland had reached an agreement in principle to settle the US lawsuit against UBS AG seeking the names of 52,000 account holders. No details of the agreement were released but, given the amount of leverage that the US can bring to bear on UBS’s operations in the United States, it would be astounding if UBS had not agreed to some major accommodation to US demands.
Let’s go back and supply a little context about how we get to this issue in the first place.
Like most countries, the US taxes its residents on income that they earn outside of the US. Unlike most countries, the US also taxes its nonresident citizens on their worldwide income. Solely by virtue of being born here, the US claims lifelong rights to your earning stream even if you take up permanent residency in another country. As a result, the US is constantly seeking ways, through treaties, laws or, now we see, international strong arm measures, to track the international financial transactions of its citizens, whether in the name of preventing drug trafficking, money laundering, tax evasion or other crimes.
US taxpayers are required to report, and pay taxes, on interest or other earnings derived from foreign accounts. Unlike US banks, which will send you and the IRS a Form 1099 each year, foreign banks do not have an obligation to report your earnings to the IRS. Accordingly, the IRS is keenly interested in finding out from you whether or not you have any such foreign accounts.
Schedule B to Form 1040 (used for reporting interest and dividends) asks, “At any time during (the previous year), did you have an interest in or a signatory or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account?” As described by the law firm of Bove & Langa in an on-line article about this matter, the answer to this question has serious potential consequences:
