Wednesday, June 15, 2011

IRS to expats and foreign account holders : "Freeze! This is a stick up!"

Recently, the IRS has announced a new voluntary disclosure program targeting foreign account holders. This piece of crap is called The 2011 Offshore Voluntary Disclosure Initiative (OVDI) which expires August 31, 2011. This is the second program of this type in recent years. This disclosure program was "designed to bring money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes." How generous of the IRS to take time out of their busy schedule to "help" US citizens. :-D

Here is the low down on OVDI: By August 31st, US citizens who hold foreign accounts are being allowed to disclose them, paying penalties that are lower than if the IRS had caught them "red-handed". The "new lower penalties" include of course payment off all back taxes, interest for up to 8 years, and standard delinquent fines. Also as a gesture that the IRS is attempting to help you, they will take ONLY an additional penalty of 25% of the highest annual balance you had for any one year between 2003-2010.

OVDI also is targeting Americans who live outside of the US with foreign income in which taxes have not been filed in the US. The US is one out of only 2 other countries who requires its citizens who work outside of the country, to pay taxes in the country they are a citizen of, yet do not live in!

When I bring this topic up, usually some anti-wealth, moderate socialist tries to fight me tooth and nail. Generally they say things like, "This is a good thing as it will scare these greedy fat cats into paying their fair share! These are rich people who are just trying to avoid paying taxes anyway, so really the punishment is too generous!" Here is the fallacy of this argument:

For instance, let's say you are some Joe "six pack" American from ANYTOWN, USA. Joe is not a fat cat, he is a truck driver who makes $35,000 a year. About 7 years ago Joe's grandmother died. Joe's Grandmother was born in and lived in Italy, where she had a bank account. After her death, Joe was lucky enough to inherit grandma's Italian bank account. An account which contained $55,000 of money grandma earned, saved, and paid taxes on throughout her life. Joe being the simple guy he is, knows he has this account, but doesn't really know how to access this account, so he let's it sit. The bank the account is in is a very stable bank in Italy and gains very little interest.

Joe hears the IRS is making some changes and is about to go after foreign account holders. Then he hears about OVDI and figures "well, gee, let me declare this account before I run the risk of going to jail." So using this new "generous" disclosure program, with back taxes paid, 25% penalty paid on the highest annual balance, interest for the 7 years, and standard delinquent fines, Grandma's dying gift to her grandson Joe, is completely gone!

What else I find disgusting is a story I had read in The Financial Times about an American expat by the name of Cindy living in Germany. Cindy had heard about the disclosure program being offered before the IRS was going to hunt full-force for American's with foreign income and accounts. Mind you Cindy has lived in Germany for 30 years.

After disclosing her information voluntarily to the IRS, Cindy was informed that because her foreign income was under $91,500 a year, she did not actually owe any taxes. However, since she did not file a tax return for all these years, even though she did not owe any taxes AND has not lived in the US for 30 years, she must pay a LARGE penalty. Cindy was so frustrated over this, she turned in her US citizenship.... And I can't say I blame her based on principle.

Clearly both our Joe "six pack" and "expat" Cindy are not rich fat cats. Nor were they trying to "evade" taxes.

The 2011 Offshore Voluntary Disclosure Initiative is really just the calm before the storm......

Last year, The Foreign Account Tax Compliance Act (FATCA) was passed. This little gem is a new tax law that will require overseas institutions (such as financial institutions, investment entities, and many other organizations that operate on a global basis) to report their American clients to the IRS.

I know most people are thinking "Yeah, don't hold your breath. You can't enforce American laws in other countries where they have no jurisdiction..." In most cases, this would be correct. However, the US government will force institutions to comply by withholding 30% of any US source income including gross sale proceeds. This law will take effect in 2013.

Many foreign institutions are fighting this new law tooth and nail. Hell, Canada is already asking for an exemption to this new law. Chinese institutions have simply responded by saying, "don't talk to us, go talk to government...." :-D And who can blame them? Searching their records for addresses, citizenship documents, etc proving citizenship of any account holders with more than $50,000 is very expensive. In Germany alone, if all German banks were to comply, it is expected that the costs to implement FATCA will reach €10 billion! Plus, in many countries the implementation of FATCA would conflict with current privacy laws.

Wow, that sounds like a real no brain-er... Let's put on our logic hat for a second and ask: Why would ANY institution spend a large amount of money to do something that will not just make them lose money but clients too? Why would any institution spend a large amount of money to be in violation of local laws but compliant in laws of a country that they do not have a large presence in?

The consequences of these actions would be dire, not just to these institutions but to America itself. The reason why is that many of these overseas institutions will pull out of the US market in order to avoid the 30% withholding for non-compliance. To further combat the withholding, these banks will probably stop offering US dollar accounts. This is because all US dollars that go into a bank, even a foreign one, must originate from a US bank somewhere down the line... Which means that the 30% withholding could still be applied. Could you imagine what kind of consequences would arise from foreign banks in mass dumping their US dollars?!

Plus, think of the actions of the US clients... First thing any US client of an overseas bank or investment entity would do is move on over to a foreign bank that offers only foreign investments. The next thing these US clients would do is dump all American investments to avoid this law. Sorry but US investors may be patriotic but not when it come to their money. People will protect their assets at all cost even if it risk doing damage to the US economy by opting out of American investments. People are concerned with what is theirs first, these are the facts of life.

As a person who spends a great deal of time out of the US on what has become a consistent basis, I ask the question, why would a government alienate the very people that help keep the economy afloat the most? Americans who make money outside of the US, generally put that foreign money into the US economy because that is the land that we have a home at!

If the US economy is a person struggling to keep its head above water, alienating foreign institutions and US citizens with foreign assets, will become the water that drowns it.

Friday, June 10, 2011

Security Concern: iCloud the big Cumulonimbus!


In case you have been living under rock or in a cave recently, Apple champion of the iPad, iPod, and iPhone, is now pushing it's new (well not so new, but more of a re-package of something existing) "hard drive in the sky," iCloud. Apple boasts:

"iCloud is so much more than a hard drive in the sky. It’s the effortless way to access just about everything on all your devices. iCloud stores your content so it’s always accessible from your iPad, iPhone, iPod touch, Mac, or PC. It gives you instant access to your music, apps, latest photos, and more. And it keeps your email, contacts, and calendars up to date across all your devices. No syncing required. No management required. In fact, no anything required. iCloud does it all for you."

As usual for anything Apple makes, people say things like "Wow! It's so wonderful. This product will revolutionize the industry if not the world." And if you are an Apple junkie, that is fine, keep on eating from the orchard.

People who know me best generally know I hate Apple. And why shouldn't I? Apple is rotten to the core. This is because anything Apple is always proprietary, thus if you buy one thing from them, you must buy everything from them. This makes you a slave to your device because it limits you in your options of what you can buy for your device. So you can either get rid of your Apple device and buy something not Apple thus being out more money, or keep it, then by default you must buy everything from them. Not very "free market" now is it?

Let me spare you my anti-Apple politics and talk about what my real concern is over the iCloud, SECURITY.

Now "cloud computing" is nothing new. For years, computer users have been storing data online for later retrieval when needed. The difference with iCloud and current "cloud computing" is that instead of simply downloading this data, you can use it and modify it live with out the timeliness of actually downloading it to your tablet, cellphone, computer, etc. Plus, iCloud automatically syncs the data from your device to the cloud.

Functionally, this sounds like a fantastic idea! However, we are all aware of the common stories we hear/read of data being intercepted or of data stored online being hacked/compromised.

We have all received those emails before of "being emailed by our email provider" asking that we email back our username and password or our accounts will be deleted. Obviously a phishing scam, most of us are smart enough to catch this, many are not. Also, social engineering is another very popular means to steal usernames and passwords.

These tactics could easily be used to steal your log in info for your iCloud. However, the iCloud being compromised is much worse as one could have all kinds of private files and documents sitting in the computing cloud for the picking. Where as your email being compromised may at worst have spam sent from it or prove you have been ordering Viagra online. :-D

I know that we all run the same risk of being hacked online as we do with the iCloud. However, most websites we log into to use tell you this, offer advise on being more secure, and even attempt to protect your security themselves. Apple is not offering this same courtesy. Andrew Storms, Director of Security Operations for nCircle, warns:


"Apple's iCloud announcement is missing enterprise security content, and we saw the same thing with the iPhone introduction. They left almost all of the enterprise level security and compliance questions about iCloud unanswered."

He continues:

"It's all too easy to imagine a Sony-scale enterprise attack that leaves IT security teams holding the bag while iCloud ‘grows into' enterprise security requirements."

Wow, scary stuff!

What about businesses who keep sensitive data? I am not saying that these businesses will be using the iCloud themselves, but more and more businesses allow employees to use personally owned devices for work. A question that any business should ask is what assurances are being given that business data is not being sent up and stored in the cloud during a sync?

The convenience of having documents automatically sync to your iCloud aside, what happens when the business wants to delete that information? If the file is removed on one platform, what assurances does the organization have that the file is also eradicated on other devices, and from iCloud itself?What happens if an iCloud users' account is compromised with these documents on it? This could be real trouble for businesses!

Okay everyone, it is time to get out your tin foil hat, it's conspiracy time!

We all know we live in a world where certain nations, ( cough, cough, CHINA, cough!) sometimes monitors, censors, and even persecutes it's own citizens. In case some are not familiar, recently an attack was launched on Google's Gmail which has originated from China (including several other high profile attacks one of which on the Canadian government). During the attack on Gmail, many usernames and passwords were compromised. It was believed to be an attempt from China's government to monitor and censor citizens.

In China, many citizens have been jailed for leaking information about the country's censorship activities. China recently jailed a journalist who leaked information about China's attempts to censor coverage of the anniversary of the Tienanmen crackdown. Mind you, Google created a censored search engine for China. Inside China, if you google Tienanmen Square, only tourist images of Tienanmen Square and the Forbidden City across the street pop up.

So if these are common tactics of China, think of the repercussions to citizens once China now not only has access to personal email, but all the data from devices stored in the iCloud. So with these automatic iCloud syncs, can you imagine what kind of "evidence" China will find and use to persecute citizens?

The scary thing is China is not the only nation with these practices!

iCloud has the possibility to be a fluffy cute little Cumulus, or a big stormy, lightening producing Cumulonimbus.

Thursday, June 9, 2011

America: The unsustainable.

With all of the recent fuss over raising the debt ceiling, Americans are divided. Recently I have read on Mises.org that only 48% of Americans polled, are not in favor of raising the debt ceiling. Which means only 48% percent of us actually have at least some basic math skills.

Another poll I have also read recently, is that most Americans agree we need to cut debt, yet want no cuts to entitlements or other social programs. I guess the old expression of "waiting to have your cake and eat it too" applies to this. Entitlement spending, when combined, consumes more money than even our defense budget, which is our largest individual expense in the US. Sorry, but we can not have it both ways, it is simply not reasonable.

Here is something to chew on:

In 2012 over 100 million Americans will be over 50 years old. Considering the US population is around 310 million, that means just shy of 1 out of every 3 of our citizens will be rapidly approaching retirement age. Which means they will be drawing on Social Security and using medicare in as little as 12-15 years, if they are not already.

Also, every year another 3.5 million Americans reach the gold age of 50.

When Franklin D. Roosevelt, signed the Social Security Act in 1935, I am sure he had the best of intentions. However, with life expectancies being for men 59.9 and for women 63.9, the age to recieve benefits was (and still is) 65. So with a program that collects money from individuals while they work, then these people die before seeing this money, this program sounds extremely sustainable... :-D

We have come a long way since then with all these medical advances, health lifestyles, etc, people are living to be much older now days. According to the recent census, current life expectancy is at 78.2. In another report on US life expectancy from The Congressional Research Center, A person who reached age 60 in 2003 was expected to live an additional 22.2 years, on average, and would die at age 82.2. This means people are now spending 20-25% of their life time in retirement drawing on Social Security and Medicare!

Okay, so I don't seem like I am attacking our nations elderly, let me also mention another unsustainable bug-a-boo, welfare programs.


According to a report from The USDA, as of May 27, 2011 44,587,328 Americans are now receiving food stamps. This number is a new all time high for the program. Hell, this number is 13.1% higher than it was just one year ago! Remember, this means 1 out of every 6.9 Americans are receiving food stamps.

Mixed into this number is the fact that now 1 out of every 4 of American children are receiving food stamps. Also 1 out of every 3 African American receives food stamps. I don't mean this on any racist grounds. I mean it on the grounds that African American's make up 13% of the population. So if a third of them are receiving food benefits, that alone is around 4.3% of the population!

Let us now look at Medicaid, our government run health insurance for poor Americans. Medicaid was first created in 1965. During this time only about 1 out of every 50 Americans received Medicaid. Today over 51 million Americans recieve Medicaid. That is 1 out of every 6 Americans. This number is higher than the amount of Americans who receive food stamps. To me, this is worse, as we all know medical procedures are generally more costly than providing food like in the food stamp program.

Still not scary enough?

For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. Government transfers of income to households started to overtake personal taxes in 2008, and it is growing. In 2010, households received $2.3 trillion in income support from unemployment benefits, Social Security, disability insurance, Medicare, Medicaid, veterans’ benefits, education assistance and other cash transfers of government funds to individuals. In this same year, households paid $2.2 trillion in income, payroll, and other taxes.


What all of this means is that our debt is simply unsustainable! A start would be to not raise the debt ceiling, so we can not borrow more to spend more. The bad thing is with this kind of spending, a vote to raise the debt limit will only come up again later if we don't raise the limit now and we cut some spending. The only real cure in my opinion, is to eventually phase out most, if not all entitlements. We must stop the unsustainable programs and spending now, so that we stop pawning off the debt on the next generation.