Why is This Topic Important to Wealth Managers? This blogticle discusses the debt limit debate. We present discussion directly from the Administration including the Department of the Treasury. Wealth managers who are following the debt debate discussion will likely be interested in our presentation of insider comments.

As almost the entire world knows at this point, the U.S. reached the debt limit on May 16, 2011. To plug the gap, the Treasury Department has employed three measures to temporarily extend our ability to meet the nation’s obligations.  Those measures, in order taken, are (1) suspending issuance of State and Local Government Series (SLGS) Treasury securities; (2) declaring a “debt issuance suspension period” of the Civil Service Retirement and Disability Fund (CSRDF); and (3) suspending reinvestment of the Government Securities Investment Fund (G Fund).

It is said that these four extraordinary measures allow the Treasury to extend borrowing authority until August 2, 2011. Here’s what Treasury has said about the debt limit over the past few weeks:

7/12 Mary Miller, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, issued the following statement reaffirming the projected date on which the United States will exhaust borrowing authority under the statutory debt limit.

“The Treasury Department continues to project that the United States will exhaust its borrowing authority under the debt limit on August 2, 2011.  Secretary Geithner urges Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”

7/13 Treasury Secretary Tim Geithner made a brief statement to the press:

There is unanimity in that room that we are a country that meets its obligation, we are a country that pays our bills and that we’ll act and do what’s necessary to make sure that we can maintain that commitment. As the Majority Leader said, we have looked at all available options and we have no way to give Congress more time to solve this problem and we are running out of time.

And the eyes of the country are on us, and the eyes of the world are on us and we need to make sure we stand together and send a definitive signal that we are going to take the steps necessary to avoid default and also take advantage of this opportunity to make some progress in dealing with our long-term fiscal problems. We don’t have much time; it’s time we move.

7/14 The U.S. Department of the Treasury released the following statement from Under Secretary for Domestic Finance Jeffrey Goldstein on the Standard and Poor’s (S&P) downgrade:

“[This} action by S&P restates what the Obama Administration has said for some time: that Congress must act expeditiously to avoid defaulting on the country's obligations and to enact a credible deficit reduction plan that commands bipartisan support.”​

7/15 U.S. Department of the Treasury releases the following statement from Jeffrey Goldstein, Under Secretary for Domestic Finance, regarding the use of the last of the previously mentioned measures available to keep our nation under the statutory debt limit, suspension of reinvestment of the Exchange Stabilization Fund.

“Today, as previously announced, the Treasury Department will suspend reinvestment of the Exchange Stabilization Fund, the last of the measures available to keep the nation under the statutory debt limit.  In order to prevent a default on the nation’s obligations, Congress must enact a timely increase of the debt ceiling.”

Finally, to quote President Obama from his address earlier this week:

“[American workers] are fed up with a town where compromise has become a dirty word.  They work all day long, many of them scraping by, just to put food on the table.  And when these Americans come home at night, bone-tired, and turn on the news, all they see is the same partisan three-ring circus here in Washington.  They see leaders who can’t seem to come together and do what it takes to make life just a little bit better for ordinary Americans.  They’re offended by that.  And they should be.”

Tomorrow’s blogticle would ideally present the terms of the debt agreement, but if not, we’ll discuss life insurance.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

Treasury Secretary Tim Geithner insists that the administration needs to reach a debt limit deal by the end of this week to give Congress enough time to enact the deal into law. Without a deal, the federal government will be unable to pay its debts as of August 2 of this year.

“Default is not an option,” he said on Tuesday, July 12, at the Treasury’s Women in Finance Symposium. “Failure is not an option, and they understand that—Speaker [John] Boehner and Minority Leader [Mitch] McConnell—absolutely understand we need to move in advance of the deadline on Aug. 2nd.”

But despite Geithner’s confidence that a deal will be reached, President Obama and Congressional leaders are also working on options for keeping the government’s bills paid if a deal can’t be reached by the Treasury’s August 2 debt limit deadline. “If we are unable to come together, we think it’s extremely important that the country reassure the markets that default is not an option and reassure Social Security recipients and families of military veterans that default is not an option,” said Mitch McConnell (R-K.Y.), who took part in the talks.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage in  Advisor’s Journal, see Democrats Call Debt Limit Unconstitutional (CC 11-134), Debt Limit Standoff Boils Over (CC 11-115) and Storm Clouds over U.S. Debt (CC 11-85).

The August 2 drop-dead date for the debt-ceiling is rapidly approaching, but Congress isn’t phased enough to set aside partisan bickering and solve the Fed’s funding woes.

In a stand against Democratic reticence over deep spending cuts, the Republican-dominated U.S. House of Representatives voted on May 31 to reject a bill that would have raised the debt ceiling. Republicans look to be using the debt ceiling fight to press the President and Congressional Democrats on spending issues.

The administration initially said that the debt-ceiling would be reached on May 16. But when that date passed, Treasury Secretary Timothy Geithner announced that the date could be extended through August 2 using accounting gimmicks and by letting bills go unpaid—for instance, ceasing investments in two government pension plans. The White House has also proposed selling 14,000 pieces of unused federal property to help cut the deficit.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of U.S. debt in Advisor’s Journal, see Debt Ceiling Approaching: Prepare for Impact (CC 11-100) & Storm Clouds over U.S. Debt (CC 11-85).

Congress on both sides of the aisle is playing a game of political chicken with the debt ceiling; but what would impact mean for the markets and the economy in general?

Although the U.S. hit its $14.3 trillion debt ceiling on Monday, May 16, economic Armageddon hasn’t yet rained down on the U.S. economy. Thanks to some slick Treasury Department maneuvering, the date when the U.S. really reaches the limit has been pushed to around August 2.

But instead of breathing a sigh of relief and resolving to engage in a bipartisan effort to resolve the debt ceiling issue in advance of the August drop-dead date, both sides are likely to wait until the last moment to avoid impact—threatening our fragile economic recovery in the process.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of U.S. debt in Advisor’s Journal, see Storm Clouds over U.S. Debt (CC 11-85).

Why is this Topic Important to Wealth Managers? This topic is presented to keep wealth managers informed and aware of the current federal regulatory environment regarding insurance. Federal oversight concerning insurance has generally expanded since the new regulatory laws were passed last year. Thus we discuss current trends of federal regulation of the insurance industry.

The Treasury Department has determined that it is in the public interest to establish the Federal Advisory Committee on Insurance. A Charter for the Committee has been prepared and is expected to be filed next week.

The stated purpose of the Committee is to present advice and recommendations to the Federal Insurance Office (FIO) to assist the Office in carrying out its duties and authorities.

It is intended that the FIO will benefit from the knowledge and regulatory experience of the State and Tribal insurance regulators, who are the functional regulators of insurance, as well as the experience and perspective of industry experts and others.

The Treasury believes that it is in the public interest to establish, under the provisions of the Federal Advisory Committee Act, the Federal Advisory Committee on Insurance (FACI).

The FACI shall be a continuing advisory committee with an initial two-year term, subject to twoyear re-authorizations. The Committee will provide a critical forum for State and Tribal insurance regulators and/or officials, distinguished members of the property and casualty insurance industry, the life insurance industry, the reinsurance industry, the agent and broker community, academics, and consumers. These views will be offered directly to the Director of the FIO on a regular basis.  The Treasury states that there exists no other source within the Federal government that could serve this function.

The FIO was established in Subpart A of the Federal Insurance Office Act of 2010 [1] Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act. [2] The FIO’s authorities extend to all 3 lines of insurance except health insurance, long-term care insurance (except that which is included with life or annuity insurance components), and crop insurance.

Generally, the duties and the authorities of the FIO are:

• The FIO advises the Secretary of the Treasury on major domestic and prudential international insurance policy issues.
• The FIO Director serves as a non-voting member of the FSOC in an advisory capacity.
• The FIO has the authority to recommend to the FSOC that FSOC designate an insurer (including affiliates) to be an entity subject to regulation as a nonbank financial company supervised by the Board of Governors of the Federal Reserve.
• The FIO monitors all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the U.S. financial system.
• The Director also plays a role in authorizing the resolution of any insurance companies subject to regulation as a nonbank financial company
• The FIO coordinates and develops Federal policy on prudential aspects of international insurance matters, including representing the United States, as appropriate, in the International Association of Insurance Supervisors (or a successor entity), and assisting the Secretary (with the United States Trade Representative) in negotiating certain written bilateral or multilateral agreements regarding prudential insurance measures with respect to the business of insurance or reinsurance.  The Office assists the Director in determining whether State insurance measures are preempted by such agreement or agreements.
• The FIO monitors the extent to which traditionally underserved communities and consumers, minorities, and low- and moderate-income persons have access to affordable insurance products regarding all lines of insurance, except health insurance.
• The FIO assists the Secretary of the Treasury and other officials in administering the Terrorism Risk Insurance Program.

In carrying out these functions, the Office may receive and collect data and information on and from the insurance industry and insurers; enter into information-sharing agreements; analyze and disseminate data and information; and issue reports regarding all lines of insurance except health insurance.

Tomorrow blogticle will continue to address issues surrounding the insurance industry.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] 31 U.S.C.§ 313, et seq.

[2] P.L. 111-203, 12 U.S.C. 5301 et seq. (July 21, 2010).

Why is this Topic Important to Wealth Managers? This blogticle presents discussion related to the State Small Business Credit which is now being applied for by an increasing number of states. The program is intended to provide capital to small businesses. Wealth managers with small business clients in these states should be mindful of the potential access to new capital.

Late last month the U.S. Department of the Treasury announced the approval of State Small Business Credit Initiative (SSBCI) applications from Connecticut, Missouri, and Vermont. The planned use of SSBCI funds by these states is intended to help create new jobs and is expected to spur more than $534 million in additional small business lending. The SSBCI program, which supports state-level small business lending programs, is one component of the Small Business Jobs Act.

On September 27, 2010, President Obama signed into law the Small Business Jobs Act of 2010 (the “Act”).[1] The Act created the SSBCI, which was funded with $1.5 billion to strengthen state programs that support lending to small businesses and small manufacturers. In total, the SSBCI is expected to help spur up to $15 billion in lending to small businesses.

Under the SSBCI, participating states will use the federal funds for programs that leverage private lending to help finance small businesses and manufacturers that are creditworthy, but are not getting the loans they need to expand and create jobs. The SSBCI will allow states to build on successful models for state small business programs, including collateral support programs, Capital Access Programs (CAPs) and loan guarantee programs.  Existing and new state programs are eligible for support under the SSBCI.

“These critical funds will help small businesses access the capital they need to expand their operations, create new jobs, and continue supporting our nation’s economic recovery,” said Treasury Secretary Tim Geithner. “Public-private lending partnerships, such as the State Small Business Credit Initiative, have a proven track record of success, and I’m pleased that this funding is on its way to support economic growth in these states.”

Under the SSBCI, all states are offered the opportunity to apply for federal funds for state-run programs that partner with private lenders to increase the amount of credit available to small businesses. States must demonstrate a reasonable expectation that a minimum of $10 in new private lending will result from every $1 in federal funding. Accordingly, the $1.5 billion federal funding commitment for this program overall is expected to result in at least $15 billion in additional private lending nationwide.

Details on the applications approved earlier in March, which the states expect will generate a cumulative total of at least $534 million in new small business lending in Connecticut ($133 million), Missouri ($269 million), and Vermont ($132 million).

The Treasury has previously approved funding for SSBCI programs in California, Michigan, and North Carolina. Additional applications are expected to be approved in the coming weeks.

Next week’s blogticles will contain helpful tips for wealth managers.

We invite your opinions and comments by posting them below, or by calling the Panel of Experts.

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[1] PL 111-240.

Treasury Secretary Timothy Geithner sparked outrage when he suggested at a recent House Ways and Means subcommittee meeting that “Congress has to revisit this basic question about whether it makes sense for us as a country to allow certain businesses to choose whether they’re treated as corporations for tax purposes or not.” Geithner’s comments about pass-through entities forced a collective gasp from millions of small business owners who could lose their ability to compete if subject to a double tax regime.   Behind client referrals, professional referrals were the second biggest producer.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous Advisor’s Journal coverage of the Obama administration’s budget and tax proposals, see Obama Budget Would Undercut Utility of Life Insurance in Small Business Planning (CC-11-41) & Obama Tax Compromise Provides 100 Percent Bonus Depreciation of Business Assets Through 2011 (CC 11-01).

For in-depth analysis of S corporation taxation, see Advisor’s Main Library: B—Corporation’s Election Under Subchapter S.

Why is this Topic Important to Wealth Managers? Presents discussion relating to Foreign Bank and Financial Account disclosures. For those wealth managers with international clients it is most important to stay ahead on updates relating to international tax and compliance. Thus we have presented a discussion summarizing the new rule position with regards to international financial reporting.

As we have discussed in the past here at AdvisorFYI, there is no specific Federal law that prohibits an individual from owning any interest in a financial account in foreign jurisdictions.  “However, because offshore financial accounts can be used to hide criminal proceeds or evade taxes, federal law does require disclosure of such accounts.” [1]

Generally, “Congress has directed the Secretary of the Treasury to require residents and citizens of the U.S., or persons in and doing business in the U.S., to maintain records and file reports of transactions and relations with foreign financial agencies.” [2]

Specifically, every “U.S. citizen, resident and businessperson who has a financial interest in, or signatory authority over, one or more bank accounts, securities accounts or other financial accounts in a foreign country”, must “report that relationship to the U.S. Department of the Treasury if the aggregate value of the accounts exceeds $10,000 at any time during the calendar year”, annually through Form TD F 90-22.1. [3]

Last year, The Financial Crimes Enforcement Network issued a proposed rule that amends the Bank Secrecy Act (BSA) implementing regulations regarding the Report of Foreign Bank and Financial Accounts. The FBAR filing requirements, authorized under one of the original provisions of the Bank Secrecy Act, have been in place since 1972.  Those proposed regulations were finally adopted in part this year. [4]

FinCEN’s final rule adopts the proposed changes with slight modifications. The final rule reflects FinCEN’s approach to issues raised in comments submitted in response to the proposed rule made by tax professionals and industry experts.  The new FinCEN rule:

• explains whether an account is foreign and therefore reportable as a foreign financial account and addresses the treatment of custodial accounts in this context;
• revises the definition of signature or other authority to more clearly apply to individuals who have the authority to control the disposition of assets in the account by direct communication (whether in writing or otherwise) to the foreign financial institution;
• explains that an officer or employee who files an FBAR because of signature or other authority over the foreign financial account of their employer is not expected to personally maintain the records of the foreign financial accounts of their employer; and
• advises filers that they may rely on provisions of this final rule in order to determine their filing obligation for FBARs in those cases where filing was properly deferred under prior Treasury guidance.

For additional discussion on FBAR see, Advisor FYI: Foreign Bank and Financial Account (FBAR).

Tomorrow’s blog will discuss topics relating to life insurance.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Steven Mark Levy.  Federal Money Laundering Regulation: Banking, Corporate and Securities Compliance (FMNYL) § 10.02. Wolters Kluwer.  2010; see, also Advisor FYI: Foreign Bank and Financial Account (FBAR).

[2] 31 U.S.C. § 5314(a).

[3] 31 U.S.C. §§ 5314(a), 5314(b); 31 C.F.R. § 103.24, 31 C.F.R. § 103.27(c), (d),

[4] See 31 CFR Part 101, Federal Register Vol. 76, Num. 37

Why is this Topic Important to Wealth Managers? Discusses common reporting requirements in regards to U.S. monetary transactions.  Provides wealth managers with a general overview of the reports clients’ activities may be subject to.

This week’s blogticles discussed compliance reporting generally regarding foreign transactions and activities.  Today, we will continue to explore some of the common reporting requirements that are filed based on domestic and international activity. 

Suspicious Activity Reports

Congress has enacted legislation to the affect that the Secretary of the Treasury requires financial institutions to report any suspicious transaction relevant to “a possible violation of law or regulation.” [1] The Financial Crimes Enforcement Network (FinCEN) maintains theses “reports in a central database and makes the information available electronically to state and federal law enforcement and regulatory agencies to assist in combating financial crime.” [2]

Currency Transaction Reports

Under Federal Statute the Department of the Treasury requires “banks, securities broker-dealers, money services businesses, casinos, and other financial institutions”, to file a “report for each transaction involving the payment, receipt, or transfer of U.S. coins or currency (or other monetary instruments as Treasury may prescribe)” in excess of $10,000. [3]

Report of International Transportation of Currency or Monetary Instruments

There is no Federal law that limits the “total amount of cash or other monetary instruments that a person may bring in or take out of the United States”, nor is there an imposition of “any taxes or customs duties on the import or export of currency or other mediums of exchange.” [4]

Nevertheless, the law “requires persons physically transporting, mailing or shipping cash or other monetary instruments exceeding $10,000 at one time, either into or out of the U.S., to file a report with U.S. Customs and Border Protection declaring the amount being transported.” [5]

The report is currently made on FinCEN Form 105, “Report of International Transportation of Currency or Monetary Instruments”.

Report of Foreign Bank and Financial Accounts (FBAR)

There is also no specific Federal law that prohibits an individual from owning any interest in a financial account in foreign jurisdictions.  “However, because offshore financial accounts can be used to hide criminal proceeds or evade taxes, federal law does require disclosure of such accounts.” [6] The new Hire Act was passed to address this problem.  In addition, FBAR is also used in this regard.  See our blogticles earlier this week for more on the new reporting and FBAR.

Report of Cash Received in a Trade or Business

The Internal Revenue Service/FinCEN Form 8300 “must be filed by any person in a trade or business (other than a financial institution) who receives more than $10,000 cash in a single transaction or in related transactions.” [7]

This includes, wealth managers, “[a]ttorneys, travel agents, jewelry dealers, pawnbrokers, real estate brokers, automobile dealers, and all other non-financial trades or businesses”. [8]

Form 8300 is similar to a currency transaction report for non-financial institutions, but “is required only with respect to receipt of cash, whereas the currency transaction report applies both to receipt and disbursement of cash”. [9]

Next week’s blogticles will discuss bankruptcy.

We invite your questions and comments by posting them below, or by calling the Panel of Experts.

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[1] Title 31 U.S.C. § 5318(g).

[2] Steven Mark Levy .  Federal Money Laundering Regulation: Banking, Corporate and Securities Compliance (FMNYL) § 7.01. Citing, 65 Fed. Reg. 13683, 13685 (March 14, 2000).

[3] Title 31 U.S.C. § 5313(a); 31 C.F.R. § 103.22.

[4] FMNYL § 9.01.

[5] Id.

[6] FMNYL § 10.02.

[7] 31 U.S.C. § 5331. 

[8] Id.

[9] FMNYL § 8.02.