December 7, 2024

Wealth Matters: Rules Aimed at Tax Evasion Abroad Trip Up Average Americans

Managing an international financial life was once solely the purview of the superrich, who jetted around the world. But given the still-high unemployment rate in the United States, opportunities for middle-class jobs abroad, in areas like finance, oil and construction, are becoming more appealing.

By taking those jobs, though, many middle- and upper-middle-class Americans have found it more and more difficult to comply with requirements on reporting the existence and value of bank accounts overseas and to reconcile the taxes of different countries.

At the same time, Americans from immigrant families who have bank accounts in their home countries that they may have overlooked are being swept up by the same laws used to ferret out millionaires and billionaires stashing money in secret Swiss accounts. The Internal Revenue Service has increased its examination of such accounts, lawyers said, with serious penalties for those who have not reported them.

So how should Americans working abroad or with a financial life in two countries manage their finances?

BASIC CONFUSION One of the great enemies of people working abroad is bad advice. That is a problem anywhere, but there are fewer sources to counter misinformation thousands of miles from home.

For example, Americans working abroad are eligible for the foreign earned income exclusion, which in 2012 exempted the first $95,100 from tax. But even if Americans earn less than that or are paying higher taxes in the country where they are working, they still need to file a tax return with the I.R.S.

“Some think if you’re paying taxes in Germany and the Netherlands and the taxes are higher than in the U.S., you don’t have to file a return,” said Ian M. Comisky, partner at the law firm Blank Rome and co-author of “Tax Fraud and Evasion.” “That’s not accurate. You have to file a U.S. return, and you get a credit for it.”

Increased I.R.S. scrutiny of bank accounts abroad under the Foreign Account Tax Compliance Act, which began to take effect this year, means foreign banks must report more information on American account holders. Mr. Comisky said he had received calls from people with undeclared overseas accounts who asked if they could transfer the money to a friend who was not an American citizen and have that person transfer it back to them as a gift to avoid the penalties from years of not paying their taxes.

“I said, ‘You can do it, but it’s illegal,’ ” Mr. Comisky said. “That’s pure tax evasion.”

There is also the issue of other countries’ taxes that the United States does not recognize. Marylouise Serrato, executive director of American Citizens Abroad, a lobbying group, said many wealth, social and value-added taxes in Europe were not eligible for credits or deductions on American taxes. “They could be a significant part of your foreign tax bill, but you can’t apply them to your U.S. taxes, so you just pay them,” she said.

While making mistakes on taxes is common, Frank Reilly, president of Reilly Financial Advisors, which has had an office in Saudi Arabia since the 1970s, said people working abroad also often made poor financial decisions about real estate.

With homes in the United States, there are two common problems. One is the logistical challenge of renting out a home you own from thousands of miles away. The other is deciding to buy a retirement home somewhere in the United States when you plan to work abroad for many more years. By the time you stop working, you may not want to live there.

“I always advise people to go as slowly as possible with buying real estate,” Mr. Reilly said.

The most financially destructive real estate problem comes when income and mortgage payments are in different currencies. “When someone in the United States takes out a mortgage, they know that their payment is $1,300,” Mr. Reilly said. “When they take out a mortgage in euros, it could be 1,300 euros. That could be $1,500 or $1,800 or $2,300. They’re exposed to currency fluctuations.”

Mr. Reilly said he counseled clients to imagine what a shift in the exchange rate could mean to them and asked some to consider putting many months of payments in that currency as a hedge.

ACCOUNT COMPLICATIONS While new American reporting requirements are meant to catch tax evaders, they are causing problems for people simply making a living abroad.

Article source: http://www.nytimes.com/2013/04/06/your-money/rules-aimed-at-tax-evasion-abroad-trip-up-average-americans.html?partner=rss&emc=rss

Cardinals Discuss ‘Hopes and Expectations’ of New Pope

On Wednesday, however, under pressure from their fellow cardinals, the Americans canceled their news briefing and shut down all communication with the news media to address a different problem: rampant leaks to the Italian news media in the delicate period of meetings ahead of the conclave, expected to begin next week.

But the tensions over how to address the news media — with American-style forthrightness or the ancient and more indirect ways of Italy — reflected a deeper culture clash between the Vatican as a global church, whose faithful often expect direct answers, and an Italian institution where secrecy is the rule but leaks often the norm.

That tension is certain to be on the minds of the cardinals as they gather to select the future leader of the Roman Catholic Church.

The cardinals swore an oath of secrecy before the meetings, prohibiting them from discussing their contents. But some cardinals have nevertheless spoken to news outlets from their home countries, including Brazil, Germany and France, sometimes sending what could be interpreted as direct messages to fellow cardinals.

Although the Americans had been the soul of discretion, careful not to violate their vows of secrecy while trying to explain their thoughts on the selection process, their strategy of taking direct questions — including about the sex abuse crisis — seemed to some Vatican observers to veer over the line into a subtle campaign for the papacy.

In the weeks since Pope Benedict XVI’s resignation and retirement, the Vatican has repeatedly said that cardinals selecting the next pope should not be swayed by statements in the news media. The Vatican Secretariat of State even compared news reports to the pressures exerted by foreign crowns to influence conclaves in past centuries.

In a terse statement on Wednesday, Sister Mary Ann Walsh, the spokeswoman for the American bishops, said, “The U.S. cardinals are committed to transparency and have been pleased to share a process-related overview of their work with members of the media and with the public.” They did so, she said, while still ensuring the confidentiality of the General Congregations, in which cardinals assess one another and discuss what they believe the church needs.

“Due to concerns over accounts being reported in the Italian press, which breached confidentiality, the College of Cardinals has agreed not to give interviews,” she added.

Those accounts in the Italian news media included tales of disagreement over the slow pace of the proceedings, and the potential advantage of non-Italian candidates for pope. Some also reported that individual cardinals advanced proposals to make it easier for branches of the Vatican to communicate better.

The leaks revealed a uniquely Italian combination of hierarchy and anarchy, in which cardinals sworn to secrecy — or perhaps their aides — leak juicy gossip and convey messages through their favorite local reporters. Vatican watchers say that approach helped lead to the scandal of leaked documents that contributed to Benedict’s decision to resign, leaving the job to someone younger and stronger.

The Vatican spokesman, the Rev. Federico Lombardi, said Wednesday that it was not up to the Vatican to tell the cardinals how to handle the news media, adding that the tradition of the conclave “is also a tradition of reserve to protect the liberty” of each cardinal so he can make his decision freely.

At his daily Vatican briefings, Father Lombardi, an amiable Jesuit with a nervous cough, often combines painstaking attention to liturgical detail with general evasion of thornier questions. Journalists have also been shown silent and surreal video images of the silver, wok-shaped urns in which cardinals will cast their ballots for pope. In the video, a mysterious hand opens the urn, a move more reminsicent of the Home Shopping Network than C-Span.

Daniel J. Wakin contributed reporting.

Article source: http://www.nytimes.com/2013/03/07/world/europe/roman-catholic-cardinals-discuss-hopes-and-expectations-of-new-pope.html?partner=rss&emc=rss