Unfortunately, revenues simply aren’t keeping up.

Your Treasury Secretary – accused tax-evader Timothy Geithner – tells you that the unfolding recession is starving the country’s government for tax revenue. Indeed, just as you unveiled your trillion-dollar national health plan, Tricky Timmy informed you that federal tax revenues were dropping the fastest since 1932 – at the height of the Great Depression.

What to do…cut spending? Well, Obama did challenge his cabinet in April to come up with a whopping US$100 million in budget cuts. That’s out of an estimated 2009 budget deficit exceeding US$1 trillion, perhaps more. To put that in perspective, Harvard economics Professor Greg Mankiw commented:

“…[I]magine that the head of a household with annual spending of $100,000 called everyone in the family together to deal with a $34,000 budget shortfall. How much would he or she announce that spending had to be cut? By $3 over the course of the year–approximately the cost of one latte at Starbucks. The other $33,997? We can put that on the family credit card and worry about it next year.”

But seriously, what could Obama do to make a significant reduction in the deficit? Obviously, it won’t be to cut spending. Instead, Obama needs to raise hundreds of billions in additional revenues. And he needs to do it very quickly…

Suppose Tricky Timmy suggests that higher income taxes on rich folks that make over US$250,000 annually may raise a hundred billion dollars or so annually…but at the expense of depressing consumer spending by about the only segment of the population that can afford to spend.

With wealth tax systems already in place in countries like France and Norway, it might seem a reasonable conclusion to an administration aiming to drastically expand entitlements (like healthcare) in an age of plummeting tax revenues.

Well, here’s an idea that Obama and Tricky Timmy might be considering, although I must emphasize that nothing official along these lines has yet been proposed: a tax, small at first, but potentially growing, on everything you own, anywhere in the world. A “wealth tax.”

And when I say “everything,” I mean everything:

• The equity in your home
• Your equity in any other real estate you own, anywhere in the world
• The value of any business you own
• The value of your retirement plan
• The cash value of your life insurance policies
• The value of your securities portfolio
• The value of any assets held for you in trust

Indeed, with a wealth tax, you’ll need to declare the value of those gold coins buried in your basement, the cash under the mattress, and of course, previously non-reportable offshore investments.

From Obama’s perspective, a wealth tax would have two powerful advantages:

1. It would generate considerable revenue on its own, although perhaps not as much as Obama and Terrible Timmy would like. For instance, the French “solidarity tax” on wealth – perhaps the world’s most severe wealth tax – raises only the equivalent of US$2.5 billion annually. The U.S. economy is five or six times larger than France’s so Obama might get his hands on an additional US$15 billion or so if he imposed a comparable tax. That’s still only a little more than 1% of the projected 2010 budget deficit, but it’s a lot more than Obama’s US$100 million challenge to his cabinet.
2. More importantly, a wealth tax would make it illegal to hide wealth in any form from the government. And Congress can increase the tab anytime it wants.

Of course, the natural reaction of many wealthy people to a wealth tax will be to move their wealth – and perhaps themselves as well – out of the United States.

That’s exactly what’s happened in France, from which thousands of wealthy tax exiles have fled. And this may be the real reason for the government’s greatly increased interest in any assets you hold offshore: to flush out assets for the future imposition of wealth tax.

The possibility of a wealth tax is just another reason why if you’re a U.S. citizen or long-term U.S. resident with substantial assets, you need to consider the admittedly radical step of expatriating from the United States. This means acquiring a second nationality and passport, and then subsequently giving up your U.S. citizenship and passport or U.S. green card status. You also need to live outside the United States.

Expatriation is the only way that a U.S. citizen or long- term resident can legally eliminate their obligation to pay U.S. income, estate, gift, and capital gains taxes. To learn more about expatriation, and the potentially huge payoff in tax savings, check out my “Billionaire’s Loophole” report here.

Sincerely,

Mark Nestmann

Source: How Would You Respond to an Obama Wealth Tax?

In some ways, this war is similar to the deceitful “harmful tax competition” campaign that industrialized nations have been conducting against offshore jurisdictions for more than a decade. It involves the same protagonists: industrialized nations versus developing countries. And one of the opening salvos of this war is occurring, of all places, in a Kentucky courtroom.

Kentucky is trying to force 141 Internet gaming sites, none of them based in the United States (much less Kentucky) to block access to Kentucky users, or to relinquish control of their domain names. The state alleges, among other things, that online gaming drains money from horse racing, a key source of tax dollars. Following a hearing last September, a state judge ordered the domain names to be transferred to the state. That decision is now under appeal.

Many of the sites have already been transferred to the state or are barred from being transferred to another owner. Other sites have informed users based in Kentucky they will no longer be able to use the site.

Internet gambling is no doubt controversial, but that’s not the point. Kentucky has fired the opening shot in a trade war against the Internet. It’s been able to seize the property of dozens of non-U.S., non-Kentucky companies because many of the domain names are registered in the United States.

What’s more, there’s no reason to think that this trade war will be limited to Internet gambling. The Internet is the fastest growing segment of the global economy. In just the past four years, global Internet sales have exploded from US$87.5 billion (2004) to an estimated US$204 billion (2008).

Given this track record, it should come as no surprise that governments want to shut down competition to local bricks-and-mortar businesses. That’s particularly true given the state of the global economy. In the United States alone, more than 75,000 major retail locations are expected to shut down in 2009. Many will never reopen – the businesses that operated there will increasingly exist only in cyberspace.

If you’re an Internet entrepreneur, you’ve chosen to be involved with what may be the only fundamentally healthy aspect of the global economy. But if you offer a product or service that can be construed to compete with a bricks-and-mortar company in an industrialized country, expect to be attacked.

To deal with these attacks:

• Register your domain name outside any major industrialized country.
• Set up backup servers outside major industrialized countries.
• Be prepared for court challenges from governments, such as that of Kentucky, to steal your intellectual property (IP).

Finally—if your Internet business is successful—you should take steps to transfer the ownership of your IP to a suitable offshore structure, if you haven’t already done so. That way, when the Kentucky’s of the world come after your Web site, you’ll no longer own the most valuable part of it. That may not make bureaucrats very happy, but it will help insure that you can continue operating online.

Source: The State versus the Internet: Kentucky Starts a Trade War

With its world-class opera, museums, and galleries, Austria is truly one of the world’s most civilized countries. Vienna, its capital, is a cultural treasure. Indeed, Mercer’s, a major human resources consultancy ranks Vienna as the second most desirable city to live in the world (behind Zurich)—and Vienna is much more affordable. And within an hour’s drive of Vienna, you can visit three different countries: the Czech Republic, Hungary, and Slovakia.

Austria is also a popular haven for English-speaking expatriates. While you won’t find the concentrations of U.S. expatriates that you would in places like Costa Rica, Panama, or London, you’ll find a high quality of life and reasonable living costs. And those costs have come down considerably in the last year, thanks to eroding real estate prices and a weakening euro.

What I appreciated about Austria more than anything else during the two years I lived there is that the cities are built for living. They’re not “urban shells” that fill up during the day, only to empty out at night as workers return to their suburban homes. And they’re built on a human scale that makes them easy to navigate without a car.

I left Austria because it was impossible to obtain a residence permit that permitted me to operate a small business without hiring numerous Austrian employees that I didn’t need. But if you can support yourself without working in Austria, it’s usually possible to obtain a residence permit. Even without one, you can stay in Austria for 90 days on a U.S. passport without any visa formalities.

If you’re interested in possibly living in Austria, I highly recommend a visit to the country. It’s more affordable than it’s been in years. While you’re there, consider opening an account at an Austrian bank—your dollars will purchase 20% more euros than they would have only a few short months ago.

If you want to live full-time in Austria, I’ve recently set up an affiliation with a firm that can help you obtain legal residence there. They can assist with the application forms (in German, naturally), help negotiate the quota system under which most categories of Austrian residence are awarded, and provide introductions to English-speaking real estate agents to find suitable accommodation. Since they’re affiliated with an international tax consulting company, they can even help file your U.S. tax returns.

Source: Austria: Not Just a Financial Haven

More from The Offshore A-Letter:

If you have property that you believe may be at risk for some future expansion of emergency or wartime controls, you can still legally take action to protect it. Here are some ideas:

• Transfer funds outside the United States and outside the U.S. dollar. It’s still possible to legally transfer funds from the United States, but that may not last if the U.S. imposes foreign exchange controls. This could occur in the event of another terrorist attack on the United States, or if the U.S. dollar falls sharply due to a terrorist incident or financial panic. That possibility may seem remote at the moment, because the U.S. dollar has appreciated sharply in the last few weeks in response to the global economic crisis. But this gives U.S. investors a rare opportunity to invest offshore and convert their dollars to foreign currencies – or to gold – at the most attractive exchange rates in more than a year.
• Use offshore structures to hold non-U.S. investments. This strategy may not only provide protection against domestic judgments, but may also provide a legal means to avoid future foreign exchange controls.
• Hold investments that aren’t subject to U.S. jurisdiction. Your investments located within the United States are the most vulnerable. But foreign investments may also be vulnerable, particularly those denominated in U.S. dollars. The least vulnerable foreign investments are foreign real estate and gold, silver or collectibles held outside the United States. Certain contractual relationships, such as insurance contracts and trusts, may also be configured to avoid U.S. jurisdiction.
• Avoid electronic transactions in U.S. dollars through U.S. clearing networks. Most electronic transfers of U.S. dollars clear through a U.S. clearing bank and ultimately the Federal Reserve. U.S. courts have ruled that funds involved in such transactions are subject to U.S. jurisdiction and thus to possible confiscation. A growing number of countries have set up dollar clearing facilities to clear their own domestic U.S. dollar electronic transactions. Such foreign clearing networks are at far less risk from the U.S. legal system than U.S. clearing networks.
• If you’re a foreign investor with U.S. interests, assess your risk to U.S. emergency or war controls. Investors from any country accused of “sympathizing with” or “harboring” terrorists are at particular risk. So are investors in countries or financial institutions through which terrorists have been accused of operating bank and trust accounts.
• U.S. persons not wishing to live under emergency controls are understandably interested in relocating to lower profile jurisdictions. Many countries welcome affluent retirees or other financially self-sufficient persons.

The prospect of emergency financial controls may appear to be remote. But as I said last week, they’ve been imposed many times in U.S. history. And, as this financial crisis deepens, they may be imposed once again.

Source: Economic Emergency Survival Guide Part II

But measures so far may pale in comparison to what’s to come.

Mark Nestmann says President Bush just has to declare a “state of national economic emergency” to open up a whole new range of drastic measures.

Past presidents have shut down stock markets, frozen bank accounts, taxed foreign investments and even confiscated gold.

As the global economy implodes, governments throughout the world have responded…

In the United States, Congress, the Securities & Exchange Commission, the Treasury Department, and the Federal Reserve Board have imposed various emergency measures intended to shore up the economy.

Congress has approved a US$810 billion (is that right?) Wall Street bailout, now enacted into law by President Bush. The SEC has banned short selling of financial stocks. The Fed has traded hundreds of billions of dollars of banks’ distressed mortgage debt in for Treasury bills.

However, we’ve only seen the tip of the iceberg when it comes to measures the government can impose in dealing with this crisis. Today, without further legislation, the President can at the stroke of a pen declare a “state of national economic emergency” of potentially unlimited duration. Once he does so, under existing law and precedent, he may:

• Impose a national banking “holiday” closing all U.S. banks or restrict and ration cash withdrawals and the cashing of checks or drafts. President Franklin Roosevelt used this authority in 1933 to closet the U.S. banking system after a run of bank failures.
• Shut down all stock and commodity exchanges. President Wilson invoked this authority in 1914 to shut down U.S. financial markets for four months.
• Impose punitive taxes on inbound or outbound foreign investments. President Kennedy invoked this authority in 1962 to shrink U.S. capital deficits and support the U.S. dollar.
• Investigate, regulate, or prohibit the importing, exporting or holding of currency, securities or precious metals. President Franklin Roosevelt used this authority in 1933 to order the sale of all privately held gold in the United States to the federal government. President Nixon invoked similar authority in 1972 to end the ability of foreign central banks to exchange U.S. dollars for gold.

With few exceptions, the U.S. Supreme Court has repeatedly upheld such seemingly unconstitutional takings as legitimate uses of the president’s war or emergency authority.

I don’t believe President Bush will assert any or all of these powers unless he feels that he has no choice. However, one event that he won’t be able to ignore would be if the U.S. dollar were to suddenly and sharply decline in value.

The dollar has sharply rebounded in value against other currencies in the last few months. However, foreign central banks hold more than US$3 trillion in U.S. dollars. You can imagine what might happen to the value of the dollar if these central banks begin selling dollars en masse.

Source: Economic Emergency Survival Guide

Mark Nestmann says investors should consider moving their assets offshore to protect their wealth (and their children’s wealth). Three common options are: 1) setting up limited companies, 2) marital bypass trusts and 3) overseas life assurance programs.

Once upon a time, if you had a net worth over US$1 million, you gained entrance into a very exclusive club.

It’s not so exclusive today: According to the World Wealth Report 2008, at the end of 2007 there were about three million millionaires in the United States, or approximately 2% of the adult population. That really shouldn’t come as a surprise, especially if you live in a state like California, where even a modest home can have a value approaching US$1 million.

Even if inflation has made entering the Millionaire’s Club less selective than it once was, qualifying might make you eligible for something considerably less desirable — the U.S. estate tax.

Absent congressional action, on Jan. 1, 2011, the U.S. estate tax exclusion reverts to its 2002 level — US$1 million. If you’re a U.S. citizen or permanent resident, the balance of your estate will be subject to estate tax at a maximum rate of 55%. Everything you own is included, anywhere in the world, valued at its “highest and best use.” Your heirs may also have to pay estate tax in the state where you lived.

Dying in 2010… for Tax Purposes

But between now and 2011, courtesy of Congress, the estate tax pulls a disappearing act – but only for one year.

For 2008, you have an estate tax exclusion of US$2 million and a top rate of 45%. In 2009, the exemption increases to US$3.5 million. And then in 2010, it disappears completely.

But alas, only for one year. Unless Congress takes remedial action, the estate tax resurfaces in 2011 with US$1 million exclusion and a top rate of 55%.

While it would be wonderful if Congress eliminates the uncertainty surrounding estate tax after 2011, I wouldn’t count on them doing so. The easiest course of action for Congress would be to do nothing.

And that may be exactly what Congress will do, especially given the prospect of a US$700 billion Wall Street bailout and annual budget deficits approaching US$1 trillion per year. Not to mention that the current budget projections assume that the estate tax will return to 2002 levels in 2011.

Three Winning Strategies for Offshore Estate Planning

Fortunately, many tools are available to reduce estate tax.

Indeed, if you make advance preparations, estate tax is truly a voluntary tax. Moreover, if you’re seeking enhanced protection for your wealth against legal predators, or simply want to take advantage of international investment opportunities, you can construct your estate plan offshore.

Several offshore estate-planning techniques exist that you and your professional advisors may wish to consider. Three of the best strategies include:

Offshore limited liability companies. One of the most popular estate planning techniques involves partnerships: e.g., limited partnerships (LPs) and limited liability companies (LLCs).

Let’s say you form an LLC in Nevis (one of the most popular offshore jurisdictions for this purpose) and contribute the bulk of your estate to it; say, US$3 million. You then begin making periodic gifts of “membership interest” in the LLC to your children.

At your death, your interest in the LLC is only worth US$2 million. Your heirs file an estate tax return that shows a membership interest in an LLC worth US$2 million. However, with proper planning, they can claim a “valuation discount” on this interest for estate tax purposes. Generally, a 25% valuation discount is considered very conservative.

That means this simple structure could reduce the size of your taxable estate by at least US$500,000, resulting in a whopping US$225,000 savings in estate tax! And, thanks to the stringent asset protection provisions of Nevis law, the funds within the LLC will be protected from lawsuits.

Offshore trusts incorporating a “marital bypass” provision. If you’re married, a simple trust called a marital bypass trust (sometimes referred to as an “A-B trust”) can double your estate tax exemption.

While this kind of trust often stands alone, you can also incorporate it into an offshore trust formed in any suitable offshore jurisdiction (Nevis and the Cook Islands are two of the most popular choices). That way, you’ll obtain state-of-the-art asset protection for your wealth, and also double your estate tax threshold.

Offshore variable universal life insurance. Life insurance enjoys uniquely preferential tax treatment under U.S. law. With proper structuring, the proceeds can flow to beneficiaries free of both estate and generation-skipping taxes. Essentially, you avoid tax on portfolio income and transactions in exchange for the cost of insurance.

If you’re a member of the “Millionaire’s Club” — or may become one in the future – you need to consider estate tax in your wealth preservation plan. And while a strictly domestic estate plan may suit your needs, if you’re looking for enhanced asset protection and greater investment choice, numerous offshore estate-planning options are available.

One final note: Proper structuring of your estate plan requires substantial legal expertise. There are many potential pitfalls. Be certain to retain a qualified attorney before you put any of these strategies into place.

Source: New Estate Tax Changes Target Three Million Millionaires

You might think that the EU would encourage countries to take steps that can spur economic growth, such as reducing taxes. That’s the approach EU member Ireland took in the 1980s and 1990s. The results were dramatic. While 20 years ago, Ireland was one of Western Europe’s poorest countries, it now has the second highest standard of living in the EU.

But instead of encouraging other countries to emulate Ireland’s example, EU leaders accused Ireland of “harmful tax competition.” And, starting in 2005, the EU began an initiative to prevent Europe’s savers from escaping the EU’s suffocating taxes.

This initiative is called the EU Savings Tax Directive. Under the Directive, EU members have two choices. Either exchange information on the offshore savings of EU residents with their home tax authorities (so the home country can tax these savings), or impose a 20% withholding tax on savings income generated by EU residents (rising to 35% in 2011).

If EU members choose the second option, then most of this revenue goes back to the EU residents’ home countries. This option allows EU countries with bank secrecy laws (e.g., Luxembourg and Austria) to comply with the directive without sacrificing confidentiality. Under heavy pressure from the high-tax EU, non-EU members Switzerland and Liechtenstein agreed to impose the tax on deposits from EU residents.

However, the plan has serious flaws, and the EU now has the worst of both worlds: minimal revenues from the savings tax initiative combined with massive capital flight to countries not participating in it, such as Hong Kong and Singapore.
In addition, the directive only covers interest payments, so it’s easy for EU depositors to switch to dividend paying stocks or real estate – neither of which is covered by the directive – to preserve financial privacy.

Under the circumstances, the smartest thing the EU could do is to ditch the plan. But instead, it’s planning to expand the Directive. According to the European Commission, the governing body of the EU, amendments will likely include:

• Increase the amount of data exchanged between EU members on accounts held outside an EU resident’s home country
• Increase the number of investments subject to information exchange or withholding, such as life insurance
• Restrict the use of intermediaries to avoid tax by handling interest payments on behalf of EU residents
• Tie in information exchange mechanisms to anti-money-laundering regulations to more easily identify the beneficial owner of accounts.

I predict the expansion of the EU Savings Tax Directive will result in even more spectacular capital flight from Europe. Asia’s offshore havens will boom. And the EU’s high-tax economies will continue to stagnate.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group

Source: EU Tells Savers to Invest Outside Europe

When you set up an asset protection plan, there needs to be other reasons for your plan to exist other than just asset protection. If you can prove that these other reasons actually exist, then the asset protection part of the plan has a much better chance of holding up in court.

Here’s an example. Let’s say that you decide you want to set up an “asset protection trust.” You consult with a trust company in, say, the Cook Islands, and the company obligingly sets up a Cook Island international trust.

What have you accomplished? Yes, you now have a trust in the Cook Islands, with one of the world’s strongest asset protection laws. But it also looks like you set up a standalone structure that screams “deadbeat” to U.S. judges.

To force “deadbeats” to pay their bills, judges have a variety of tools at their disposal, including jailing a debtor. This last remedy isn’t common, but it does exist most notably, in situations where a debtor or the debtor’s legal advisors have made serious planning errors.

Understanding and Avoiding the “Anderson Fiasco”

One of the most famous examples of jailing a debtor happened in the Anderson case. Mr. and Mrs. Anderson were allegedly engaged in a Ponzi scheme. The Federal Trade Commission (FTC) sued the Andersons in federal court and obtained a US$20 million judgment.

When the Andersons claimed that they couldn’t pay the judgment, the FTC obtained a court order requiring the couple to repatriate US$8 million in assets from their Cook Islands trust.

The Andersons failed to obey this order and the judge jailed the couple for civil contempt. A federal appeals court affirmed this decision.

The judge released the Andersons from jail only after they:

• Appointed a company controlled by the FTC as the new trustee for their trust
• Amended the trust to remove the FTC from the definition of “excluded persons” under the trust deed
• Resigned as their own trust protectors

However let me put you at ease. The Anderson case was a phenomenon, not the rule. They experienced these problems because there were serious errors in their trust. The Andersons’ biggest mistake was they named themselves as both the trust’s co-trustees and co-protectors. They only gave up that position once their trial began.

It Doesn’t Have to Be This Way

Let me assure you: This was truly the worst case scenario. You don’t have to go to jail to protect your assets. There are plenty of perfectly legal domestic and offshore plans you can use to shield your assets. But the most important thing to remember is: Make sure asset protection isn’t transparently the sole purpose of your plan.

Returning to your example, let’s say after consulting with a qualified attorney in the United States, you jointly decide that a Cook Islands trust should be part of your asset protection plan.

Only, instead of having the trust being the only element of the plan, your trust exists as part of a larger structure that accomplishes other goals.

For instance, an integrated structure that includes a Cook Islands trust might also contain your last will and testament, a living trust, and possibly a domestic limited partnership. At your death, your residual assets “pour over” from the will into the living trust.

Properly structured, this configuration serves several purposes that are completely unrelated to asset protection:

• Provides convenient access to non-U.S. investments
• Doubles the estate tax exemptions for a married couple
• Provides the opportunity for valuation discounts for gift tax purposes through gifts of limited partnership interests
• Serves as the primary estate planning device after your death

Depending on your particular needs, many other elements can be brought into this structure.

The important point, though, is that asset protection is no longer the only exclusive purpose for your plan. Asset protection is simply a byproduct of a more diversified plan, because the assets will be safely tucked away offshore, safe from creditors.

In this way, you’re getting what I call “asset protection by stealth.” It’s not obvious to anyone looking at your plan, but it’s a useful, undisclosed perk of your overall plan.

Don’t Wait! Take Action Now Before It’s Too Late

The time to set up this type of plan isn’t after you’ve received notice of a lawsuit. You should form it when there are no pending claims against you, or that you even know about.

If you wait until after you have claims against you or a pending lawsuit, then a court can later declare your plan was intended to “hinder, delay or defraud” creditors. This makes the asset transfer a voidable “fraudulent conveyance” in the eyes of the law.

Please make sure you speak to a qualified asset protection attorney to find out if this is the best time for you to set up this type of plan. This way you can ensure your actions won’t constitute a “fraudulent conveyance.”

Bottom line: It’s not hard to avoid an Anderson-type fiasco. Simply make sure your plan has other legitimate purposes besides asset protection. Plus, by properly structuring your plan this way, you can secure additional perks like investment diversification and estate planning while getting the asset protection you desired all along.

Source: Stealth Wealth Protection: What It Is and How to Get It

The requirement was tagged onto the Housing Bill as it rushed its way through Congress. It aims to clamp down on $100 billion that the IRS claims small businesses owe in taxes.

But Mark says there might be more to this measure than just collecting unpaid taxes. What if the IRS are preparing to introduce an internet sales tax? This would raise large revenues for the state, but cause an administrative nightmare for small, online merchants.

Either way, it’s time to start saving those receipts…

If you can take the IRS at their word, then supposedly the U.S. Treasury loses nearly US$100 billion in unpaid taxes from small businesses.

That’s a big number, and I believe it’s a gross overstatement. I’ll explain why in just a moment. But in reality whatever the number is, the new housing bailout bill is designed to dramatically reduce it.

The IRS believes that America’s small businesses are evading billions of dollars in taxes through unreported credit card transactions. And for that reason, it’s long been at the top of their legislative agenda to require credit card issuers and electronic payment systems like PayPal to report sales data to the IRS.

Tax Inquisition Planned to
Bailout Deadbeat Homeowners

The housing bailout bill does just that, broken down in terms of payments to businesses accepting the cards. Essentially, the bill requires Visa (NYSE:V), MasterCard (NYSE:MA), Discover (NYSE:DFS), American Express (NYSE:AXP), PayPal, Amazon (NASDAQ:AMZN), Google Checkpoint (NASDAQ:GOOG), and virtually every other “electronic payment system” to track, aggregate, and report to the IRS, information on nearly every electronic transaction.

They must report:

• The gross amount of payment card and third-party network transactions
• The name, address, and taxpayer identification number of the participating merchant

However, the bill gives these systems more than two years to gear up for these requirements. Mandatory reporting won’t come into effect until 2011.

Basically, what the bill does is to give the IRS a way to check what a credit card company or electronic payment system is actually paying a small business compared to what the business owners are reporting on their tax returns. If the two numbers are wildly out-of-sync, then you’re likely to be audited.

eBay Powersellers, Beware!

How might this bill affect you? If you’re an eBay (NASDAQ:EBAY) Powerseller, for instance, and sell US$40,000 of cosmetics each year over the Internet, at the moment, eBay doesn’t have to tell the IRS anything about the sales.

But starting in 2011, eBay will have to send you – and the IRS – an annual report. The report would say for example that Connie’s Cosmic Cosmetics received US$40,172.13 in gross payments from eBay for that year.

And here’s where it might get very dicey with the IRS. People who operate businesses are supposed to declare their gross income on Schedule C (or a corporate tax return). Then they’re supposed to deduct all the costs of doing business to arrive at a net figure of taxable income.

However, a lot of small businesses don’t keep particularly good records. All the owners may know are what they have left at the end of the year. And that’s what they report as their income, without accounting for their gross income or their expenses. Any Internet business that takes this approach after 2011 will be in for a serious wake-up call!

The Numbers Don’t Add Up!

As I mentioned a moment ago, the IRS believes small businesses are evading taxes to the tune of US$100 billion annually. That’s the number IRS Commissioner Mark Everson dangled in front of the Senate Budget Committee in 2006.

Everson also said that if Congress unleashed the IRS against small business, it could recover “between US$50 billion and US$100 billion without changing the dynamic between the IRS and the people.”

Now, Congress has done exactly that. Only the numbers don’t add up. A more recent study from the Treasury Department says that credit card transaction reporting would net less than US$10 billion in added revenue.

And indeed, according to the Congressional Budget Office, the new provisions will raise slightly less. The Budget Office estimated they’ll raise a total of US$9.8 billion over a 10-year period.

The Hidden Agenda for Reporting Credit Card Transactions

That’s a lot of dough, although it’s a pittance for the tax-and-spenders inside the beltway.

For that reason, I don’t think matching up credit card transactions with eBay power sellers is the real reason Congress enacted this part of the housing bailout bill. Instead, I think there’s a hidden agenda for a much bigger take.

I could be wrong, but it seems to me that setting up an infrastructure that matches credit card transactions with payments to Internet merchants is a tailor-made solution to help collect sales tax.

Right now, most Internet transactions still aren’t subject to any form of sales tax. States will be chomping at the bit to get the IRS to share this data with them, so they can directly bill merchants for in-state sales. Any company that does business on the Internet, but doesn’t charge sales tax is at risk.

It’s not necessarily simple to “know what you owe,” either. In addition to the sales tax regimes in effect in nearly all 50 states, online merchants that collect sales tax must negotiate a maze of city, county, and municipal taxes.

Plus, they must file sales tax returns in the jurisdictions in which they sell goods or provide services. Small merchants that can’t justify investing thousands of dollars in software that can make the necessary calculations, and file the necessary returns, will be forced out of business.

Then there are the periodic calls for some kind of future national sales tax or value-added-tax. The infrastructure this bill creates will make this tax easy to collect. Everything will be in place, and the IRS can simply send a bill to merchants that don’t pay the tax.

Even if this worst-case scenario doesn’t come to pass, it’s quite clear that if you operate a small business, the IRS has you in its sights. And come 2011, you’d better have the data to track every dollar you spend in business expenses against the gross income reported to the IRS. And if you don’t, you can count on a tax inquisition.

Source: Small Business Owners Beware: Say Goodbye to Tax-Free Internet Sales

I stated that for U.S. persons, unlike other forms of gold, eagles are eligible for the reduced 15% tax rate on capital gains. However, that’s only true if you’re in the 15% tax bracket (e.g., married filing jointly with an adjusted gross income under US$63,700).

Gold eagles along with all other forms of gold bullion are considered “collectibles.” If you’ve held them for over one year, your gains are taxed at your marginal tax bracket. For collectibles, the maximum rate is 28%, not 35%.

However, if you’re concerned about the government confiscating gold (as FDR did back in 1933) you may want to purchase gold eagles instead of some other form of gold. The 1985 legislation that authorized producing the coins, now known as gold and silver Eagles, stipulates that these coins are to be considered “numismatic items.”

They’re not specifically exempted from any future government confiscation of gold. However, the terms of the emergency order President Franklin D. Roosevelt issued in 1933 that forced owners of privately owned gold to sell their holdings to the government specifically exempted “gold coins having recognized special value to collectors of rare and unusual coins.”

I don’t think another gold confiscation is particularly likely, mainly because the takings would be pretty slim. If the federal government gets desperate enough to begin confiscating property under some emergency decree, it would likely start with assets that are easy to identify and with a much greater value. That includes real estate, stocks, pension funds, etc.

However, if you do believe a confiscation could happen, then you should consider you purchasing the only coins specifically defined in U.S. law as “numismatic.”

MARK NESTMANN,
Privacy Expert & President of The Nestmann Group
www.nestmann.com

P.S. Not interested in Gold Eagles, but still want to buy gold? My colleague, Eric Roseman just wrote a special report with all his favorite gold and silver plays. Now you can order your own copy.

Source: Why Buy U.S. Gold Eagles?