Be wary of your investments -- the TAXMAN is watching

[Guest]

... However it's worth remembering that IT changes everything.They have access to real time tax data from the countries we have discussed. It doesn't take a lot of effort and time to tap someone's name into a computer and see how that squares with the numbers they have declared on their tax return.

As far as the US goes NTA does not have direct access my US tax returns. .

They must file a request/reason with the U.S. IRS in order to obtain them.

And I can't see NTA doing this unless something catches their attention.

They aren't going to randomly audit me anymore than the IRS is going request my J-tax info without a reason.

I just don't earn enough to warrant such close attention.

[Brown Cow]

Japan is very keen to exchange information and work closely with overseas tax authorities. This includes sharing of real time information and permanent staff based in Washington and London working for an organisation called JITSIC which sounds like the main tool at their disposal when it comes to taxing earnings in another country. JITSIC was created by The UK, Canada, The USA and Australia for exactly this purpose. There isn't a lot of information about what they do but it looks like the efficient, cheap and quick sharing of individual taxpayer's information is their main brief. Japan joined it within a year. As of 2010 China, France, Germany and the Republic of Korea were on track to join. There is some indication that is as big as it is going to get - It is intended that it serves as a model for other groups of countries who share common concerns and issues. A bit more here:

http://www.businessifc.com/articles/...x-years-on.htm

[Guest]

Japan is very keen to exchange information and work closely with overseas tax authorities.

Sorry but neither NTA nor any other country has direct access the US tax info.

A request must be file with the U.S. IRS.

[chainbolt]

Yes, but they were likely audited because a financial transaction or transactions caught the attention of NTA and not because of a random audit.

Many gaijins simply donft earn enough to warrant such attention.

We are back to your old storyline. Surely most gajin don't have an income that puts them on the regular radar screen of the NTA for an audit, and surely avoiding transactions in and out will minimize the risk for an audit further. This is all undisputed - albeit for some here it seems they were not aware of the "risk" that comes with in/out transfers. Yet, I think it would be a mistake to assume that if both conditions are given (income below 10 MJY and no transfers) you are safe in regard of non declared income aboard. The national tax authorities of the G-20 nations are increasingly cooperating and exchanging information. If your income from interest, dividends, rent, or capital gains is not reported now, or next year, it might happen in 3 or 5 years, and the NTA can go back up to 5, if they really get nasty, up to 7 years.

(assuming of course that you are a "permanent tax resident" , and have the intention to stay longer).

[Brown Cow]

If your income from interest, dividends, rent, or capital gains is not reported now, or next year, it might happen in 3 or 5 years,

Exactly. Declaring nothing would seem to be an obviously risky strategy as well as tax evasion, which is a crime.

[chainbolt]

Sorry but neither NTA nor any other country has direct access the US tax info.

A request must be file with the U.S. IRS.

This is misleading in the way you put it. The point is that certain national tax authorities do report individual cases to the NTA proactively. If they become aware that one of their nationals is paying no or only reduced taxes on income in his home country because he is residing in Japan, they report such case to the NTA. I do know this from Australia and also UK. And I expect this to become the standard procedure in the future at least for the nations (US, UK, Australia, Germany, and ?) that are working in this special "anti tax evasion" group.

It is also so, and we have quoted here from the tax treaty between US and Japan, that the IRS can, if they want, report any tax related information to the NTA without a request from the NTA. Apparently they currently don't do this, but it is possible within the existing legal framework.

[Guest]

This is misleading in the way you put it.

BC seemed to impy that NTA has direct access to my IRS information and they don't.

NTA must go through the IRS to obtain it.

... The point is that certain national tax authorities do report individual cases to the NTA proactively......


It is also so, and we have quoted here from the tax treaty between US and Japan, that the IRS can, if they want, report any tax related information to the NTA without a request from the NTA. Apparently they currently don't do this, but it is possible within the existing legal framework.

Yes, both IRS and NTA can share suspicious activity but my point is this: I find it highly unlikely that either NTA or the IRS is going run a random audit on relatively low income earners while at the same time request additional tax info. from a foreign tax agency unless they have a very good reason.

Now... to be clear. I am not saying a gaijin teacher earning 5-9 million a year won't get audited.

What I am saying is if you keep out off their (NTA/IRS) radar you really don't have much to worry about.

It's questionable financial transactions which get you flagged and reported.

(I got caught by the IRS years back for failing to report the $200 I earned one summer while in the States on holiday. Actually it was my dumb ___ accountant's fault because I gave him the 1099 but for whatever reason he didn't report it on my tax return. Thus I got flagged and the IRS contacted me about the $200.)

[Guest]

We are back to your old storyline. Surely most gajin don't have an income that puts them on the regular radar screen of the NTA for an audit, and surely avoiding transactions in and out will minimize the risk for an audit further. This is all undisputed - Yet, I think it would be a mistake to assume that if both conditions are given (income below 10 MJY and no transfers) you are safe in regard of non declared income aboard. The national tax authorities of the G-20 nations are increasingly cooperating and exchanging information.

No you are not 100% safe but the odds are still quite small that low-income earners will be randomly audit unless they draw attention.

... The national tax authorities of the G-20 nations are increasingly cooperating and exchanging information.

So what? NTA can already request a copy of my IRS return anytime they want.

But why would they?

[Guest]

Exactly. Declaring nothing would seem to be an obviously risky strategy...

Yes there is a risk but if you're careful you can minimize such risk and keep your overseas income out of the equation in Japan.

And while the write-offs for investment properties are similar between Japan and the US my J-income would take a big jump if NTA found even a quarter of my US income taxable.

[Brown Cow]

BC seemed to impy that NTA has direct access to my IRS information and they don't.

More that the NTA annual report and report on JITSIC pretty much says that in some cases at least they had achieved information sharing to that extent and it is a goal of both organisations. Whether or not that applies to the US I have no idea. In any case it doesn't really matter if the request for information is a mere formality facilitated by IT. In that case, they can get the information quickly and easily.

I agree that movements of money may well be a common trigger for an audit. However, I think it is a step too far to say it is the only possible trigger. if you were scanning a list of non Japanese taxpayers for possible evasion and you saw someone, shall we say, a bit older than many, who was claiming they had no income from overseas savings and investments wouldn't it give you pause? There have been a lot of economic good times and there is such a thing as inheritance. Unless the person concerned was really unlucky or spendthrift there should be some serious money tucked away somewhere. All the more true if they come from a middle class background which typically Westerners here do.

[Guest]

More that the NTA annual report and report on JITSIC pretty much says that in some cases at least they had achieved information sharing to that extent and it is a goal of both organisations. Whether or not that applies to the US I have no idea. In any case it doesn't really matter if the request for information is a mere formality facilitated by IT. In that case, they can get the information quickly and easily.

Again NTA already has a relationship with the IRS and all they need do is file a request for a copy of my tax returns.

But as I mentioned before why would they without a very good reason?

[Guest]

...I agree that movements of money may well be a common trigger for an audit. However, I think it is a step too far to say it is the only possible trigger. if you were scanning a list of non Japanese taxpayers for possible evasion and you saw someone, shall we say, a bit older than many, who was claiming they had no income from overseas savings and investments wouldn't it give you pause?

No. Not at all esp. if the gaijin is still working. Time and money is much better spent looking at those in a higher income bracket.

And while NTA has a working relationship with the IRS they do need to provide a reason to see my tax returns.

Can't see NTA or the IRS requesting info. from each other on a fishing expedition.

Far more reasonable to assume they would have cause.

[chainbolt]

But why would they?

because ....

- they increasingly target foreign tax payers knowing that some/many/most (take your pick) do not declare their income abroad as they should (this is the assumption that started this thread)
- they see that you have not declared any income abroad - which is not credible
- random tax audit
- bad luck

I would see it business like: I can quite easily calculate what I have missed paying, and from that I can calculate what they will charge if they audit me: tax for 3 or 5 years + interest + penalty. Depending on the amount and my personal situation, I would decide whether I can live with the risk.

[Guest]

Yes one needs to weigh the likelihood of a random audit versus having the Japanese take a whack at your overseas income.

Because once you start declaring such income NTA has their hooks in you and they will be watching.

This you can be sure.

But NTA like the IRS can`t audit everyone. Time/money is likely better spent going after upper income earners or those flagged than on a fishing trip investigating lower wage earners.

And as I mentioned NTA already has a relationship with the IRS but they do need to provide a reason to run an audit on a US citizen.

I find it unrealistic they would run such a check without cause anymore than the IRS would request a copy of my J-return without a good reason.

[Majestic]

From the Dec 5th Japan Times:

Undeclared foreign income focus of talks

..."Lacking investigatory power outside Japan, the agency is actively collecting information from its foreign counterparts on Japanese money invested abroad."

http://www.japantimes.co.jp/text/nb20121205a1.html