The complexity of the USA tax system for private individuals

Governments can seem like a crying baby – always hungry, demanding more and their food is found through taxation, which is becoming increasingly complex, especially in the USA.

For USA clients worldwide taxation of assets is the norm’ which is similar only in the Philippines. California is considered to have the highest tax rates and with fifty one states with different laws, it is territory that is to be negotiated with care. As Josh Rubenstein, Joint Managing Partner of Katten Muchin Rosenman, New York office confirms “don’t ever make assumptions either here or abroad about tax issues for UHNW clients. You will inevitably be wrong. Check every detail.” Josh also warned that the IRS are hot on temporary visas. He said “it won’t stop the IRS going after clients and claiming domiciliary.”

With tax treaties on the increase, Paul Roberts of Price Waterhouse Coopers also cautions that information sharing between governments is also on the increase. He said “Fifty countries now
have treaties and identify trends.” He continued “There is now a new tax group called JITIG that is set to increase information sharing between the countries involved. So far they are Australia, Canada, US and UK but Japan is also joining. This group puts agents in each country to help report across the group.

The upshot of this is that particularly for the USA, foreign accounts will/could get discovered so exact reporting on foreign accounts or trusts is paramount. Al Peguero of PriceWaterhouseCoopers, San Francisco agreed with this theme. “The government can
and will find assets even in far flung offshore islands.” He says there are various “traps” the government are laying which makes his job totally about tax protection these days not avoidance or evasion, as people often believe.

Josh confirms this viewpoint saying "the US government recently changed the date on one filing time (very late in the day) and penalised anyone who didn’t notice and no excuses were accepted." The fine was more onerous than usual with a percentage of the assets in question being taken rather than a few hundred dollars penalty. This means you can’t even assume rules are the same month on month and may need warning systems in place.

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