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Viewpoint: You can run but can you still hide?

We recently posted an article titled: You can run but can you still hide?  Please find my thoughts on the subject below: Darlene_Hart

At long last the US Department of the Treasury, Financial Crimes Division has set wheels in motion for new Money Laundering Rules/Know Your Client (KYC) rules similar to those practiced by Foreign Financial Institutions for years, and it is long overdue if the US is to stop the ‘black hole’ image it has acquired over the years.

Foreign nationals will no longer be able to hide funds in the US by using US LLCs as a blocker from a privacy standpoint. Proposed new tax regulations will require all foreign entities with US financial accounts or US LLC’s to obtain a federal identification number and possibly be required to file Form 5472 (balance sheet, income statement and details of the ultimate warm body behind the structure) with the IRS on an annual basis.  This is true for single member LLCs owned by foreign entities and individuals, and foreign entities with US bank accounts. Although in most cases, no US income tax will be due if there is no US trade or business, but there will be annual reporting requirements. The proposed effective date for the new regulations is currently 2018.

The IRS and other US governmental authorities will then have the information they need on the ‘ultimate warm body’ behind the foreign structure.  The US authorities have already agreed to share with their FATCA partners under the 104 IGAs (Internal Government Agreements) that have been signed or agreed with the US government. Many US lawyers, accountants and financial advisors are advising foreign nationals that it was still safe to set up foreign entities to own US LLCs or set up US bank and brokerage accounts for their foreign clients.

While use of foreign entities to own US LLCs, US real estate or other US trade or business assets is still an excellent idea from an income and estate tax standpoint, the advice from these US advisors is often given with the understanding that the US government currently does not have the ability to share their clients’ information with the Foreign IGA partners, as required under the FATCA regulations.  Beginning in 2018, assuming the proposed regulations are implemented, this will no longer be the case.

Transparency is to be new world order, even in the USA.

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