Taxpayers told to come clean
(CNS): The introduction of new legislation in the United States has raised concerns among Caymanians holding US passports and green cards who have not been paying what they owe to Uncle Sam. At a specialist seminar last week it emerged that a significant number of people may have been avoiding – whether deliberately or not — paying money owed to the US government. The professional presentation on tax-related obligations raised complex legal issues but it also spelt out the need for them to come clean and start filing tax returns. The new law means their own banks will be forced to reveal their assets leading to severe tax penalties if they don’t take action.
“My advice is you need to file income tax returns, get back in the system and file the FBARs,” the people were told by William Davis, a Dallas based tax attorney and one of a number of experts at the seminar hosted by the finance ministry to explain the implications of the new law on US/Caymanians.
He told the packed Marriot ballroom that the game would change in January 2013 with the onset of the Foreign Account Tax Compliance Act (FATCA).
“You have bank accounts in Cayman and your banker’s going to have to report those accounts…so it goes from maybe the IRS will never know to ‘Hey, my bank told the IRS that I’ve got bank accounts,” Davis warned.
FACTA was enacted as part of the goal to clamp down on US tax evasion all over the world, and it was apparent that a significant number of people here in the Cayman Islands left the IRS system and have not been filing returns. It is not exactly clear how many US citizens living in Cayman have not fulfilled their obligations to the Internal Revenue Service, in direct contravention to US law, but after the seminar, attended by more than 300 people, many stayed to seek advice from the assembled tax experts.
Along with the implications of FATCA, the experts explained that US citizens, in addition to filing tax returns, are also obligated to file annually a Report of Foreign Bank and Financial Accounts, or FBAR, which details any overseas accounts that in total hold more than US$10,000.
The overseas and local experts who spoke during the seminar all stressed that every US citizen has always been legally required to file tax returns no matter where the income is generated. Wherever they are residents, US citizens have to pay taxes and that is not new or different. But the enactment of FATCA will ensure that Americans with money in foreign banks will no longer be able to hide those accounts.
Failure to file an FBAR can result in a litany of financial penalties, including a civil penalty of US$10,000 per violation and payment of 50% of the aggregate of all the accounts held in a foreign bank.
At the public question-and-answer session, many of the queries focused on personal filing requirements and getting back into the IRS “system”, if returns haven’t been filed, to minimize the potential penalties. Though the FBAR requirement is decades old (it was enacted as part of the Bank Secrecy Act in 1970) it seems that many US citizens in the Cayman Islands are not aware they need to disclose the amounts held in their foreign bank accounts.
The voluntary disclosure initiative, however, allows US citizens who have been delinquent in filing tax returns or FBARs to come clean with the IRS and pay up. Although this may prove costly for those who have been avoiding paying their taxes long periods, experts said it will prove less expensive than subsequent penalties and provide the opportunity to start again with a clean slate.
Though audience members were given an opportunity to question the tax experts at the seminar, they were advised to seek additional advice on their individual situations, for which they would have to pay.
George McCarthy, Chairman of the Cayman Islands Monetary Authority, also warned against firms taking advantage of clients who need tax help. He spoke of a woman who related to him her experience when she sought help from a service provider to regularize her tax affairs.
“The price that was put on the table was $10,000,” McCarthy recalled adding that it may not sound much for some but was a lot of money for a lot of people. “I am going to suggest that for those who are going to be rendering assistance, I know that the cost of providing the service will have to be taken into account, but this is not what should be regarded as a scalping exercise.”
The CIMA boss said it required all hands on deck in order to get the issue sorted out.
Category: Local News
Can someone tell me how I can easily file my taxes??? HELP!!!
This government should of NEVER of signed this agreement… Mac your killing our economy !!!! Why would US people put their money here now ??? Sad, we needed a government with some foresight . Afraid it may be too late now. God help us.
A great example of someone posting on a topic they obviously know nothing about, a Cayman speciality. Apparently the gist of his post is that Cayman functions to assist tax evasion by Americans and our government should be facilitative of tax evasion . . .
It’s not going to work out exactly the way the USA plans. People are already placing their bets on other markets when foreign investments pull out of the USA.
Well, I guess this is justified I mean being a U.S. citizen you have an obligation to do your share and help out. But, after you have done so, where does the money go? It goes in large part to finance the debt the U.S. finds itself in. Debt?? Who does it owe? China for one. But surprisingly enough it also owes money to large financial firms who own treasury bonds the ones that are sold to finance the government. And they own a lot of them. How did they afford these bonds when they were not too long ago on the brink of disaster? They borrowed it. At interest rates of .5% and less from your friends at the Federal Reserve. Correct that it was actually your money they borrowed, because the American people were kind enough to help them out.
http://www.huffingtonpost.com/2011/04/26/fed-lending-helped-wall-street_n_853884.html
Read it and weep.
You guys would be a fool to pay uncle sam ur taxes. There are so many tax evaders that there wouldn’t be any room to house them in prisons across the United States. Can anyone give me a list of names of persons they know that have been arrested for not paying their taxes??? Not one! All the bad news you hear, are just attempts to intimidate and get you to pay. Also, what a great way to hurt the island’s financial center by taxing or harassing its 90% clientelle.
“Can anyone give me a list of names of persons they know that have been arrested for not paying their taxes??? ”
Ever heard of Al Capone?
What a goofball….
Click the name for the link. Appears the US is tossing evaders in jail….
Yeah… and if I evade, how will they get me overseas? Only if I am fool anough to pay them a visit!
While the report here is substantially correct, there is an oversight in the article. The requirement to report to the IRS and pay taxes owed is not limited to just U.S. “citizens”.
The U.S. tax laws refer to “U.S. persons” for tax purposes. It is a pretty broad umbrella and you may be under it without even realising it just now. “U.S. persons” for tax purposes includes citizens, those holding legal residency (regardless of where they may now reside), Green Card holders (regardless of where they may now reside), possibly former Green Card holders (regardless of where they may now reside), and those persons born within the U.S. (regardless of where they may now reside or hold citizenship) who may be considered “U.S. persons” for tax purposes. As you can gather, this number will include a significant number of Caymanians who fall into one of the categories.
Certainly if you possess a U.S. passport you are a “U.S. Person”. But another little-know factoid is that you may be deemed to be a U.S. citizen (and therefore have a tax obligation) without even knowing it! It has nothing to do with you having a U.S. passport or having applied for U.S immigration status. Read on.
Under certain circumstances, if you are a Caymanian who was born in the U.S. or have one parent who at the time of your birth was an American citizen, you likely are deemed to be an American citizen from the time you were born! Thus, you may be subject to U.S. taxes and might you not know about it until the IRS come a-lookin’ for ya! Your passport may be British Overseas Territory Cayman Islands, but Uncle Sam’s tax guys own a piece of you too. If memory serves me correctly, one or more of our current MLA’s, and also some past MLA’s, fall under this umbrella.
Then there is the little-known “Substantial-presence Test”, by which a nonresident alien (a Caymanian for instance) might incur a U.S. tax obligation without even knowing he or she has done so! If you are a Caymanian who likes to spend substantial time in your condo on Key Biscayne, or with your family in Tampa, beware! For tax purposes, the U.S. may treat you as if you were a resident if you become too cozy and spend too much time in the U.S.! Generally, a foreign national meets the substantial-presence test if that person is present in the U.S. for at least 31 days during the tax year and meets the “183-day test”. The foreign national nonresident alien satisfies the 183-day test if the sum of days present in the U.S. during the current year, plus one third of the days present in the first preceding year, plus one sixth of the days present in the second preceding year, equals at least 183. (Interesting math, huh?)
Please also bear in mind that for tax purposes, “Green Card” holders will be treated the same as U.S. citizens; so surrendering your Green Card (say for example you wish to return to the islands to retire and give up your Green Card) you will be subject to the same tax obligations as a renouncing citizen! Are you a Green Card holder who already returned home here, same story: you might have already incurred a tax obligation!
If you are a Caymanian and also a “U.S. Person” who has failed to file timely returns you may be in debt to the IRS for an astronomical sum as the late filing penalty is 5% per month!
And another thing: it is not just “income that you are obligated to report: As a Caymanian with American citizenship or the holder of a Green Card, or otherwise qualify as a U.S. person, if you own more than a 10% ownership interest in a Cayman or other “foreign corporation” you are required to file a special form with the IRS reporting that interest. In many cases, if a foreign corporation owned by a U.S. Person is making profits, it might be considered be a “controlled foreign corporation” and you may also owe U.S. tax on its earnings.
I do not know if the tax seminar touched upon the subject of “hidden” citizenship” or the Substantial Presence Test, or the implications for the many Caymanians who hold “Green Cards” – but they are very real concerns as the U.S.A. tries to get its greedy, wasteful hands on every brass farthing it can!
Oh yes…lest I forget: Here’s the final nail in the coffin: if reading this causes you to decide to give up your U.S. citizenship, don’t! Not without proper legal and tax advice anyway. If the U.S. rules that your renunciation of citizenship is done solely to avoid paying U.S. taxes and you cannot satisfy requirements proving otherwise, you will be subject to the “renunciation taxes” and also subject to continued reporting obligations and taxation under special rules for 10 years after expatriation!
If you are a Caymanian with U.S. citizenship and due to recent publicity about the matter you have come to realise that you have a tax obligation to the USA, or you just do not want to pay U.S. income tax on your Caymanian income and capital gains, you might be considering “expatriating” or giving up your U.S. citizenship. Please consult a competent professional well-versed in U.S. tax law before doing so. U.S. citizen’s tax and IRS reporting obligation will not will not simply end the day they “turn in their U.S. passport” and renounce U.S. citizenship.
“Renunciants,” is the official term used by the U.S. when referring to individuals who choose to give up their U.S. citizenship or residency. New U.S. legislation treats Renunciants very seriously for tax purposes!
Quite ominous is the fact that the IRS will treat Renunciants as if they sold ALL their property for fair market value the day before the expatriation date! So renunciant Caymanians will be subject to U.S. federal income tax on the net unrealized gain on their world wide property “as if” that property had been sold for fair market value on the day before expatriation; whether or not they actually sold any property is irrelevant; for tax purposes the Renunciants will be hit with a tax bill “as if” they had sold ALL their property – and not just real estate – everything they “own”, cars, jewelry, furniture, hamsters, cricket bats, boat, clothing, books, your DVD collection, your business, burial plot…everything! The “deemed” gain from those “sales” will be taken into account for the taxable year in question. Certain pension programmes may also be within Uncle Sam’s greedy grasp. If you do not have the money to pay the tax, too bad. Sell your house and live in a tent – you will be right in style next Easter.
It could cost you BIG time to give up U.S. citizenship. If you are a young Caymanian who is also a U.S. citizen it may be advisable to renunciate now before you accrue any substantial worth and property.
There is much focus on banks and bank accounts, however, it is not merely holders of “bank accounts” that come under the law. For a U.S. Person, (Caymanian or otherwise) their holding an interest in insurance programmes, trusts, certain pensions, corporations, and myriad other financial or fiscal vehicles incurs a tax reporting liability.
I bet you had no idea that appealing blue passport or green card could come with such onerous obligations, now did you?
well just renounce your citizenship whilst your young, flee to africa, get married to an african princess and out of uncle sam’s reach… oh yes… and don’t forget to kiss the cayman islands and all well developed countries goodbye, because through immigration and banking institutions, they can always track you down. also wherever you go, ensure that you are happy in a third world country, you have emotional and economic support, and the woman you are with is content to be with a man who is broke. seriously, it costs alot to be absolutely free! if you had money like dart to get good lawyers, it wouldn’t be so bad
Reminds me of Julia Butterfly Hill “resisted about $150,000 in federal taxes, and donated that money to after school programs, arts and cultural programs, community gardens, programs for Native Americans, alternatives to incarceration, and environmental protection programs. She said: ‘I actually take the money that the IRS says goes to them and I give it to the places where our taxes should be going. And in my letter to the IRS I said: “I’m not refusing to pay my taxes. I’m actually paying them but I’m paying them where they belong because you refuse to do so.”’ – No wonder why you have not just thousands, but millions of Americans not paying their taxes! On top of that, 12 million illegal immigrantsin the country!
***** Chad, I guess the U.S. authorities and some of the commenters here will not hesistate to brand them all as “CRIMANALS” to be punished without discretion. ***** Libertarian
Does anyone see the massive irony here? The Cayman Islands helps enormous multinational corporations and hedge funds avoid paying tax, yet they want to penalize individuals for doing the same thing.
This is exactly what happened when McKeeva Bush decided to squeeze a few more dollars from money transfers. Rather than go after his buddies that own some of the biggest funds in the world and we are talking trillions, (they execute enormous electronic transfers every day with no penalty at all), but the poor Jamaican, Filipino, Honduran etc that wants to send a few dollars of their paltry pay back home is penalized 2%. How indicative of the gross injustice in today’s world where the have-nots get less and the haves get more?
It’s quite amusing to hear Mr. George McCarthy warn of scalping because during his tenure as Chief Secretary many disastrous policies (unbridled immigration, emasculated police, explosive growth of the civil service, nationaldebt at record levels) that were implemented have resulted in a scalping of these islands on a grand scale. This is not even mentioning the 12 years that he had as Financial Secretary to put in place a solid, robust and coherent Public Accounting Methodology. What we have now as a result is total disarray. I would suggest that “all hands on deck” may be appropriate, but I fear the damage is already done.
I’m still waiting for 2010 CIMA Annual Report.
These words are spot on. The 2% tax is a shame on Cayman. Oh well, I guess it’s safer to kick the little man than the big man.
…the poor Jamaican, Filipino, Honduran etc that wants to send a few dollars of their paltry pay back home is penalized 2%. How indicative of the gross injustice in today’s world where the have-nots get less and the haves get more?
Any help/seminars etc for those of us in the Sister Islands?
Thanks y’all.
What happened to the old mattress, put your money under there, where no one can find it. Just jooking, build a vault in your homes. The bank is not giving but peanuts anyway, so why use them to save.
The socalled "terrorist" are so sophisticated and also intelligent. When the banks became stricted and much regulated, they created a network of underground banks with no paper trail but everything by word of mouth, the money passing from hand to another hand, crossing borders even reaching to south america. The authorities can never beat that kind of system! They speak less about it because they know that wealth would become decentralized and that means less money for them in power! So those they want to squeeze wealth from, they either #1. implement economic sanctions or impose legal financial obligations; or, # 2. through the well funded media like CNN and BBC, falsely report the news worldwide, making those who resist look like "terrorists" or enemies of the international community. An example of this, can be seen off the coast of Somalia where oil / large fish companies have caused a depletion of marine life. In response, Somali fishermen have congregated and have invaded ships to stop the environmental abuse along their coastline. The media / U.S. authorities quickly broadcasted the country as a haven of pirates and Al Quida. This is just but one example of how they cunningly use the media for propaganda – telling only one side of the story. And the world sap up their daily stories like gospel!; or, # 3. If all does not work, they use the CIA, planned assisnations, riots, and military operations. – you name it. The world is becoming more divided – the people versus the elite figures of governments across the globe.