International Tax Compliance

	By Stephen Rickert Co-Partner In-Charge, Tax Partner International Tax Services Group (310) 478-4148 x347 | srickert@rbz.com
Publication Date: Summer 2009
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One of my roles at RBZ is to help our clients with their international tax compliance issues.

This area has always been complex and the misinformation that gets bantered about at cocktail parties regarding what can and can’t be done when an individual or company crosses an international border makes practice in this area even trickier (By the way, no matter what your dentist, golf coach or neighbor says, you CANNOT establish a company in the Cayman Islands and have that company never pay U.S. tax and you CANNOT escape U.S. personal taxation by giving up your citizenship and moving to Belize).

One reason that this type of misinformation remains so prevalent is that there is generally no coverage of international taxation issues in the press, and as local practitioners generally don’t operate in the area, the misinformation just keeps going around and around.

However, this has changed since mid-2008 when the Department of Justice began investigating UBS and its involvement with possible tax-evasion schemes. Since that time, “offshore” and “tax haven” have become dirty words, and equated with tax fraud.

Because of how high profile “offshore” activity has been received in the press, Congress and the President have been actively beefing up enforcement of the current international tax compliance and reporting laws, and proposing legislation to “crack down” on these tax cheats. A sampling of recent articles include the following headlines:

• Obama Plan Aims to Limit Use of Offshore Havens by Multinationals and the Wealthy
• Obama Unveils Far-Reaching Proposals to Crack Down on Offshore Tax Abuses
• Senate Panel Says GAO to Continue Probe Of Businesses Moving Offshore to Evade Tax
• IRS International Specialists Would Grow By 1,500 Under 2009 Budget, Obama Plan
• IRS Ramping Up Emphasis on International Tax Compliance in Agency-wide Strategy.

So you may be asking yourself, “I’m not an international tax cheat. I’m not running millions of dollars through my unlisted Swiss bank account, so why should I be concerned about all of this?”

Well, as so often happens when a sledgehammer is used to kill a fly, the effects are not just felt by the fly.

For example, suppose your parents live in England, and you keep a bank account there for convenience purposes when you visit, with a balance of a bit over $10,000 USD. If you fail to disclose this account to the proper authorities, you could be subject to annual penalties of $10,000 per year (or more) just for keeping this account! (We sent out an email to discuss foreign bank accounting reporting in detail earlier this month.)

Let’s say this same person is the owner of a small UK company that holds an apartment in the UK that is occasionally rented out. If the proper information disclosure forms are not completed, a $10,000 fine per year can be assessed.

Both of these penalties can be assessed even if the interest on the bank account and rental income are disclosed on the person’s U.S. tax return!

In the past, these minor infractions IF discovered (and that was a big IF since generally the IRS was not often looking in these areas), would lead to a slap on the wrist and a warning to file all the forms. Now because of the compliance initiatives, it is questionable if the IRS will continue to be so lenient.

In a nutshell, the world of international tax is confusing, and the reporting requirements are complicated and are not intuitive. So if you’ve always wondered what the real story is about your personal or company’s international activities and their taxability and reporting requirements, now may be the time to leave your cocktail party conversation and give us a call to get the real scoop.