Hundreds jam tax seminar

More than 300 people, many of them concerned American citizens, jammed into a tax seminar at the Marriott Beach Resort Tuesday afternoon to hear about the ramifications of the US Foreign Account Tax Compliance Act.

The seminar, which featured US tax attorneys from Washington and Texas as well as others, was presented by the Cayman Islands Government and Cayman Finance and was mainly intended for American citizens, green card holders and others subject to US taxes.

Premier McKeeva Bush said that when he and the delegation he led discussed FATCA with US Internal Revenue Service and US Treasury officials in Washington in March, it was made clear that the Act in no way singled out the Cayman Islands or any other jurisdiction.

“While this does not diminish the potentially onerous provisions of FATCA, it is important for us to note locally that the Cayman Islands are not being targeted,” he said.

Cayman Finance Director Dan Scott said FATCA was “one of the most important and far-reaching pieces of tax legislation to come out of the United States in 
recent memory”. He said it would impact a number of Caymanians who had ties to the US through citizenship or residency, as well as non-Caymanian US citizens working or living in the Cayman Islands.

“Because FATCA will affect so many people in so many different ways, the best advice I can give you is to educate yourselves on its provision and avail yourselves of the expertise 
at hand…” he said.

Enacted in March 2010 as part of the Hiring Incentives to Restore Employment – HIRE – Act, FATCA will require, as of January 2013, foreign financial institutions to agree to report information on bank accounts held by US taxpayers to the Internal Revenue Service or face a 30 per cent withholding tax on payments made to them from US financial institutions.

Tax attorney Thomas Yancey from the firm Sidley Austin in Washington noted that American citizens and those with various US residence status, including green card holders, are subject to US federal income tax regardless of where they live. Even people who have expired green cards are generally subject to US taxes.

All of these people must file an annual US tax return if their income level goes above specified thresholds based on their filing status. In 2010, these thresholds range from US$3,650 for a married person filing separately to US$20,900 for a married couple who are both over 65 and filing jointly.

For Americans who have been honestly filing their US tax returns and separate reports on foreign financial accounts, FATCA will have little effect since the same information being reported by foreign financial institutions will have already been reported by the taxpayer on form Form TD F 90-22.1 – known as FBAR. However, the foreign financial institution could ask for those it deems to be US persons to complete and sign a W-9 Request for Taxpayer Identification Number and Certification and to sign a waiver allowing it to report the information to the IRS.

Penalties for failing to file an annual FBAR are severe. For non-wilful failures, the civil penalty is US$10,000 per violation, subject to reduction for reasonable cause. For wilful failure, there’s a civil penalty of the greater of 50 per cent of the aggregate reportable account amounts or $100,000, per violation. There is also a criminal liability of up to $500,000 and up to 10 years imprisonment for wilful failure to file.

Mr. Yancey noted that US taxpayers who file tax returns can elect to take an exemption – which increases for inflation and is US$91,500 for 2010 – on their foreign earnings. However, if someone doesn’t file a return and the IRS starts investigating him or her, then they will not be eligible for the exemption and their entire income, now matter how much it was, would be subject to income tax, penalties for late filing and interest.

Some people might want to give up their US citizenship to avoid taxes, but Mr. Yancey explained that giving up citizenship does not relieve a person from past US tax liabilities and that the person would be subject to an exit tax under certain circumstances.

The attorneys spoke about a couple of voluntary disclosure programmes for taxpayers who haven’t filed or were behind in filing. They suggested people who were in this position seek guidance from a US tax attorney or tax accountant to determine their best course of action.

In some cases, for people who earned under the foreign earned income exclusion, a quiet disclosure could be an option. This entails simply filing all delinquent income tax returns and FBARs without contacting the IRS first. However, there is no guarantee this will not lead to further inquires from the IRS, especially if a taxpayer is already under investigation. Mr. Yancey said the statute of limitations for US tax offenses was generally three years from the date a tax return is filed. However, there is no time limitation on the assessment of tax, interest or penalties for a tax year if the return wasn’t filed. For wilfully failing to file a return or to pay tax, the statute of limitations for criminal prosecution is six years. For failure to file an FBAR, the statute of limitations is six years for civil penalties and five years for criminal penalties.

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11 COMMENTS

  1. Cayman Finance Director Dan Scott said FATCA was one of the most important and far-reaching pieces of tax legislation to come out of the United States in recent memory. He said it would impact a number of Caymanians who had ties to the US through citizenship or residency, as well as non-Caymanian US citizens working or living in the Cayman Islands.

    Enacted in March 2010 as part of the Hiring Incentives to Restore Employment – HIRE – Act, FATCA will require, as of January 2013, foreign financial institutions to agree to report information on bank accounts held by US taxpayers to the Internal Revenue Service or face a 30 per cent withholding tax on payments made to them from US financial institutions.

    This pretty much bears out what my last post on this topic says…

    The bigger issue for the Cayman Islands is that 90% of all business transactions are eventually converted into US dollars; the overall GDP of the Cayman Islands’ economy runs into many 100s of millions of US dollars, at the very minimum.

    This also includes the value of government transactions; most of the CI Government’s projects are now funded by loans arranged through US financial institutions and made and repaid in US dollars.

    With due compliance regulations ruling out cash transactions under money laundering laws, 95% of the information backing up this astronomical amount of financial value is completely available to the IRS through the US clearing banks and the US Federal Reserve, which is responsible for all US dollars currency and non-cash transactions throughout the world…no exceptions.

    This new tax measure is a way for the IRS to tax the world’s economies for the use of US dollars, the currency in which most financial transactions are conducted in or converted to.

    As crazy as this idea might sound…

    A way for the Cayman Islands to come out on the winning end in all this might be to apply to become a part of the USA, similar to the US Virgin Islands.

    This way, Cayman ends up paying the minimum US tax rates without any unnecessary penalties and with the same appeal processes due to all US citizens.

    Before people begin to slaughter me for this suggestion…

    Its just a thought !

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  2. Fiery, No disrespect but I have to say you are out of your mind, if the Cayman became put of the US, the US Gov would suck them dry. Currently England leaves them alone for the most Part, to run their own country. The US would basically take over. Starting with Taxing every Working Caymanian. For the property they own as well as their Income. You think there a lot of expats working there now, if Cayman was a US State, anyone from the US could go there and get a job without Immigration being involved.

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  3. One way to assist not only the current issue but to also save the Cayman Islands millions of dollars every year is to adopt he U.S. Currency– like many South American countries have done. Panama, Ecuador, El Salvador, many small islands in the Pacific. Other countries have effectively dollarized their currency–Bermuda, Bahamas and actually–Grand Cayman. If the government got rid of the local currency– you would avoid that expense of printing money, you could halve the size of the monetary authority, reduce banking fees for counting and segregating all the dollars–as well as shipping currency around the island– AND this FATCA legislation might not have as harsh an effect. No way should Cayman join the USA… but if the currency is already pegged–why not use it and save some hassle, expense and stop businesses from having the specify their quotes in both CI and US dollars; preventing tousist from asking about currency exchange, stocking the ATMs with 2 currencies, etc.

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  4. NJ2Cay

    Keep your hat on, my friend..it’s only a suggestion meant to spur debate on the issue LOL!

    We both know that this is not a practical idea but, in theory, what else is this new tax law by the IRS doing but taxing the Cayman Islands indirectly ?

    I’ve pointed out where and how the USA already owns the Cayman Islands economy through its reliance and dependence on US currency and markets.

    For the profits and wealth that have been generated through this connection on which no taxes have been filed or paid, its time to pay the piper, as far as the IRS is concerned…

    And they have come up with a method to ensure this through the inter-connectiveness of the world’s banking system and the use of US currency that flows through that system.

    What this law does is tax all users of US currency that can be proven to have even the slightest responsibility to file income tax returns with the IRS.

    Your understanding of the other, micro aspects of this complex relationship, along with the poster who suggests converting Cayman’s currency to US currency is spot on…

    But none of this helps the Cayman situation with the IRS.

    Cayman is going to be paying taxes to the Internal Revenue Service of the US Government, no question about it.

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  5. I agree that most of our heads should be something more than just a HAT RACK
    While the Cayman Island’s premier promises to do all that he can to assist US citizens living in the Cayman Islands and Caymanians with US passports; if your political science knowledge and grades is of any help at all, it’s time to increase your GPA. He’s blowing up smoke again!
    This premier is smart, slick, and subtle. Sorry to be the one to make the announcement but not many Caymanians are a match for this man not even Mr. Alden McLaughlin, he doesn’t even come close so please do not risk the country in 2013 by putting Alden in that seat.
    Mr. Ezzard Miller is most qualified to oppose this man so you better consider him strongly for premier in 2013 not because I like him but I truly believe Ezzard Miller is an honest man that we can trust, he tells the truth and he IS NOT A MONEY HUNGRY SHARK. All Ezzard has to do is stay away from the topic of independence for these Islands at this time and he will be the front runner in elections 2013 for the position of Premier.
    What does all of the above have to do with US Taxes, passports citizenship and blaming the Cayman Islands for US failures? Well here I come presenting to you the real facts feel free to conduct your own reality check:-
    Can the Premier really do all that he can to assist anyone in lobbying the world super power the United States of America?
    Has the Premier really done all that he can to assist those responsible for paying taxes to the US IRS? Again, can he?
    More IMPORTANTLY This is a topic that can, will, and probably as we debate this matter; IS PISSING OFF WEALTHY TYCOONS around the world and especially those living among us here in the Cayman Islands.
    Mr. Dart as we are all aware denounced his US citizenship in order to enjoy and keep his billion dollar fortune away and out of the IRS hands. A brilliant but painful decision to make. One must respect him for making such a great sacrifice. There’s Mr. Ryan and a few more.. What is their take on this whole scenario?
    I’ll tell you what their take is going to be pretty soon. They’ll seek out other jurisdictions that will not be bullied by the US government that has thrown trillions of dollars away into the hands of dining and wining reckless wall street corporations while the poor people and the education system suffers for lack of funds that went down the toilet. Now they’re trying to use the United Nations, the E.U. and mother UK to threaten or give us some screen shots of independence for these Islands which means loss of our Financial Industry and all that money RELOCATING TO THE UK and or DIRECT RULE LIKE Turks and Caicos, They are putting us in between a rock and a hard place. Its not all about taxes, collecting taxes is not enough money for SHARKS! its all about the Cayman Island’s Financial Industry, they want to SHUT US DOWN! one way or another! They are well aware we are in no shape or form ready for independence, and they are well aware we are the world’s FINEST ECONOMISTS, this makes them mad that we are a world leading financial center holding most of the world’s wealth! Our money is their honey and these political bullies are determined to get all of it, they want not some but they want IT ALL!
    What’s in it for Big Mac? Well, the rich North Americans already invested in our society who thought they were living in the promised tax free land will have no other recourse but to stretch forth their Rod like Moses did, and apply for Cayman Islands citizenship denouncing their US citizenship, if this is too bitter a pill for them to swallow, it will not at all do them any good culturally, nor economically to continue living and investing in the Cayman Islands, they will leave and go back home. Most of them will fight. The rich and elite x-pat investors in the Cayman Islands would have a hard decision to make and that is Denounce their U.S.citizenship too like Mr. Dart did and consequently would not have to pay taxes to the US IRS.
    Yes, consequently there’s something in it for the Premier, a whole lot! there’s a whole lot of rich people that would gain Cayman Status and continue living here as Cayman Citizens this will serve him well in 2013 and pay well for the UDP election campaign! .
    Take careful note the date 2013 this law comes into effect! THIS IS NO COINCIDENCE ! You need to confirm who really set that date, Obama or Big Mac?! This date could not have been set without the US negotiating this with our Premier, and wit his APPROVAL! he has not been upfront with us.The question still remains Has Big Mac really been trying to help these people or himself?
    Why should we believe this man, if these are the kinds of talks as a premier he has been engaging in, shouldn’t he have at least had a press release before leaving for such important and serious talks? My Golly its the IRS! it leaves many unanswered questions, why couldn’t he tell the people the subject of his Washington DC discussions before hand, and give us a full report of the exchange of dialogue. Maybe the FOI will take care of this on our behalf or CN News Service. To date the premier is only reporting what the US is going to do! He’s not telling us what his response was, I can imagine based on the decision made! so use your own imagination people, don’t be duped again and again. His story is Not good enough it has too many holes in it and I’m afraid and I’m not convinced he’s helping anyone but himself.
    This is not a conspiracy theory. these are the facts. Wake up this is no time to allow a Premier UDP, PPM or Independent to play games with your life and tell you stories, some of you need to get on the plane each time he leaves to go abroad for talks, and sit in on these hearings or hire an agency to do this service for you. WE NEED TO HEAR WHAT HE’S TELLING PEOPLE. We seem to get the short end of the stick each and every time.

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  6. How did the US pull this one ? No Big Mac did not stand up for Caymanians Nor US citizens in Washington.
    He made a deal!

    Just what is involved in that deal makes me curious.
    What did the US promise him that he’s not telling us?
    I know this man. There’s something it it for him and its going to come out in the wash.
    The US could not do this to us without the approval of the Cayman Island’s leader. If Big Mac can stand up to the UK then how come he didn’t stand up to the US?
    I have a feeling he’s not telling us everything, and he’s going to benefit from this somehow.

    What did the US promise him something in this milk is not clean and I DO NOT BELIEVE THE PREMIER’S STORY.

    We are not a reporting agency for IRS and this could only have been done if THE PREMIER WAS ON BOARD WITH IT!
    he screwed all of us again!

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  7. well… Cayman’s government has made themselves more dependant on the United States than their neighboring countries. We are so caught up with the U.S. and U.K. and they don’t care about us! I wouldn’t be surprise that someone is being blessed whilst we are being sold out to the IRS – Bunch of crooks!

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  8. @firery – Simply put… the Foreign Account Tax Compliance Act, FATCA, is PAVING THE WAY, YES… PAVING THE WAY for the IRS to know who they can tax and how much they can tax! This is applies not only to U.S. citizens, but financial / business entities with U.S. connections. This will hughly impact the Cayman Islands, because our government have made themselves so dependant on the U.S.!

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  9. The Cayman Islands is very dependant on foreign goods. What do we as Caymanians produce? Nothing! All we have offer is ocean water for pleasure. The Caymans have a Premier that only cares about himself and not the people he represent. But who elected him anyway? We do we keep electing people that we know will continue to shaft us?

    If the Caymans become a USA Territory, this is going to hurt the Caymans. We will have to pay taxes to IRS, taxes on property, etc. Most Caymanians will be bankrupt. Trust me on this. I live in the USA and 40% of my income goes to the USA Govt.

    Hold on……Caymanians if you join USA, you are ruin.

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  10. Boddden

    That’s the long and short of it, pretty much.

    When the world became depedent on the US economy and currency the conditions were put in place; this is why the USA have fought every single war since WW 2.

    When Japan was subdued by the Hiroshima and Nagasaki a-bombs, the USA gained a foothold in the markets of Asia and from there built its strength as the world’s modern superpower; if you notice, Vietnam, Korea, Iraq, all countries in the East or Middle East with strategic resources or positioning.

    Now, with the world’s banking system so totally inter-connected, the IRS will now have financial data available on a scale never before seen.

    Where this impacts Cayman more than is obvious is that much of Cayman’s wealth has been built by people who would not have wanted the IRS to have that information and have tried diligently over the years to use Cayman to shield themselves from such scrutiny.

    I can guarantee you that there were more dual-citizenship Caymanians at that meeting than there were American workers and we know the reason why.

    This initiative is going to change a lot of people’s lives and how they conduct their business from now on.

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  11. No my dears,
    You don’t need to become another Puerto Rico or Guam.

    the US would use your beautiful Caribbean Tourism product Waters to do their neuclear testing and you would not be able to do one thing about it!
    Have any idea how they treat their veterans who risk their lives, I suggest you use google for a change.

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