New Bill (HIRE Act) May Restrict Access to Foreign Bank Accounts for US Citizens and Residents

Buried in a bill labeled, Hiring Incentives to Restore Employment (HIRE) Act is the Obama Administrations latest attempt to limit US Citizens and Residents ability to invest and bank offshore. The bill sounds harmless enough, more like a bill to generate incentives for job creation than what some are calling quasi currency controls.

The Bill introduces expanded reporting requirements on foreign bank account holdings, as well as a 30% withholding tax to be implemented by foreign institutions doing business with US Citizens and Residents in an effort to keep the flow of information coming into the IRS, and prevent US Individuals from diversifying their investments outside of the US and US dollar.

Expanded Reporting on Foreign bank Accounts and Foreign Assets

The expanded reporting provisions of the HIRE Act come into effect from January 1, 2011. They expand, but do not replace the current FBAR (Report of Foreign Bank Accounts and Financial Accounts) reporting requirement that obliges any US person with foreign bank accounts and financial accounts exceeding the value of $10,000 to report such accounts.

From January 1 2011, the HIRE Act also requires reporting of any foreign investment where the combined value exceeds $50,000.

Withholding tax on Transfers to Foreign Bank Accounts

The withholding tax, the element that concerns some commentators as a first step to currency control, does not come into effect until January 1, 2013. From that date, the bill attempts to require US financial institutions to withhold a 30% tax on the value of the transfer of any payments made to foreign bank accounts, unless the foreign institution agrees to report all details of such transactions to the US government.

Not only are there are hefty penalties for failure to comply (for the account holder), but the account holder will undoubtedly be the party saddled with the burden of proof, as US financial institutions and foreign banks look to relieve themselves of any potential liability.

Implications for holders of Foreign Bank Accounts?

It is feasible that US Banks and financial institutions, when in doubt as to the purpose of a payment will withhold the 30%withholding tax to limit their own liability when transferring funds to a foreign bank account. Proving that the transaction is exempt from the withholding tax will then fall to the account holder, who is suddenly faced with a 30% tax.

Foreign banks and financial institutions, faced with a substantial administrative reporting burden, may choose instead to no longer do business with US individuals, making it difficult and expensive for US citizens to transfer funds offshore.

This bill is new, and analyses of the full ramifications are still unclear. Only time will tell if the intent of the bill matches what commentators fear. One thing is certain; however, anyone with foreign investments, foreign bank accounts, or reason to transfer funds outside of the US to foreign bank accounts, should familiarize themselves with the provisions of the HIRE Act, and keep abreast of the continuing discussion of the provisions.

Sources:

Mark Nestmann Blog

Zerohedge.com