by Vernon Jacobs, Guest Editor, The Oxford Club
A 2010 Investment U White Paper Report
Editor's Note: The IRS is cracking down on offshore holdings. They want us to keep on believing it's illegal. We tracked down one of the world's foremost experts, Vernon Jacobs, to shed some light on U.S. regulations and offshore accounts. Vernon is a CPA with a focus on international tax law. He's the author of half a dozen books on international taxes, including the comprehensive Guide to Reporting Foreign Financial Accounts. And the timing couldn't be more perfect for this topic.
De facto is Latin for "in fact."
It's often used to describe the exercise of power that hasn't been legally or officially established. It also describes any other established practice that isn't an "official" law or policy. Such is the case with currency controls in this country.
Since the announcement of the near $1 trillion package of programs to stimulate the economy (and bail out the "too big to fail" institutions), fears of inflation have motivated many investors to anticipate that currency controls will soon follow.
Those fears are unfounded. Why? Because we already have currency controls.
They aren't a law that restricts the movement of dollars outside the United States. What we have is a more devious method of deterring U.S. investors from moving dollars and assets offshore, without actually passing a law that explicitly says anything about currency controls.
"De Facto" Currency Controls
The United States has adopted reporting and disclosure laws that function as a strong deterrent for those who are looking for currency diversification. One of them is the Report of Foreign Bank and Financial Accounts (known as FBAR). This requirement has been in existence since 1970. But only recently has the IRS used it to encourage taxpayers to report any income they receive from a foreign account.
The other is a new report that's part of the 2010 Hiring Incentives to Restore Employment (HIRE) Act, which requires U.S. persons to file an annual report with their tax return to identify offshore assets with a combined value of more than $50,000.
The FBAR form isn't new. It was created by the 1970 Bank Secrecy Act to encourage money launderers to disclose their foreign holdings. Of course it didn't work. But it did provide a strong incentive for law-abiding taxpayers to divulge their foreign accounts to the Treasury Department each year.
While currency controls are not yet present in a traditional form, there's a disclosure system in place that the government could easily use. If an executive order were signed requiring the repatriation of any offshore financial accounts, it would be a simple matter to contact everyone in that database.
The FBAR form requires the disclosure of financial accounts held offshore. That clearly includes:
Disclosure: no disclosure