by Brian Mahany
There is not a week when the new Foreign Account Tax Compliance Act isn’t in the news. The controversial new law which is already in effect for individuals will soon require foreign banks to disclose the identities of U.S. taxpayers with an interest in a foreign bank or brokerage account. This week, the IRS entered into an intergovernmental agreement with the United Kingdom, Spain, Italy, France, and Germany while at the same time the U.S. House of Representatives was poised to vote to repeal the controversial tax enforcement measure.
In early February this year Treasury officials announced a joint statement with the above countries that pledged to work together to stop global tax evasion. This week the six countries released an intergovernmental agreement making global reporting much closer to reality.
While Treasury and IRS officials are busily working on international information exchange agreements, a group of Congressmen and woman are trying to repeal the law. While such efforts might be successful in the House of Representatives, the measure is widely expected to fail in the Senate and would not likely be signed into law by President Obama. The president has been a leading voice in international efforts to increase global reporting.
While we agree that tax evasion should be stopped and results in honest taxpayers paying more taxes to make up for the billions of dollars lost to tax cheats, the FATCA effort looks to be very costly with questionable results.
The penalties imposed by Congress on those that fail to report their offshore holdings are completely out of proportion to the offense. The perception by many Americans (and apparently Congress) is that foreign accounts are only opened by wealthy businessmen seeking to evade taxes by hiding their money in Swiss accounts. Most of our clients, however, are hard working taxpayers born in Canada or India or China who simply send money “home” to family. There are also millions of Americans who are dual nationals or who retire or work overseas. The tax code, unfortunately, lumps everyone together.
FATCA is likely to remain on the books for the foreseeable future. Even without the FATCA law, the IRS has become quite adept at ferreting out unreported foreign accounts.
If you have an unreported account, be prepared to pay penalties of $100,000 per year or 50% of the high balance in the unreported foreign account for each year the account was not reported. (Foreign accounts must be reported annually on a Report of Foreign Bank and Financial Accounts commonly called an FBAR.)
There is an amnesty program presently offered by the IRS that prevents criminal prosecution and offers significant breaks on penalties. For many taxpayers, more traditional disclosure may be a better option, although there will be an audit and there are no guarantees on penalty reductions.
Once FATCA comes on line in a few months expect more and more accounts to be reported to the IRS. Unfortunately, if the IRS finds you first there is no amnesty available.
If you questions about the amnesty program (the 2012 Offshore Voluntary Disclosure Program also known as OVDI or OVDP), FATCA or other foreign reporting requirements, give us a call. All inquiries are protected by the attorney – client privilege and protected from disclosure. Time is quickly running out if one wishes to avoid an expensive audit, huge penalties and possible criminal prosecution.
For more information, contact attorney Bethany Kroes at email@example.com or by telephone at (414) 223-0464. Not sure you are ready to speak to a lawyer but want more information? Simply type in the words OVDI , FBAR or FATCA in the search box of our blog located in the upper right corner to see listing of more informative articles.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California (tax matters only). IRS tax services available worldwide.