By Brian Mahany
No one likes FATCA, the Foreign Account Tax Compliance Act. Passed by Congress in 2010, the law requires both U.S. taxpayers and foreign banks to report Americans with foreign accounts. U.S. taxpayers are already subject to FBAR filing rules. (An “FBAR” is a Report of Foreign Bank and Financial Accounts.) Having a second report with different rules adds more confusion and a greater liklihood of fines if a mistake is made. Foreign banks hate the law because it forces them to become informants for the IRS and adds a tremendous amount of extra work.
Although foreign banks have long complained about the law, the volume and frequency of those complaints is increasing. A sample of headlines this week reads as follows:
- “FATCA’s ‘Vulnerabilities Evident’, Washington Expert Claims, Calls For Repeal” – MarketWatch
- “…Banking Execs Say Majority of Banks to Miss FATCA Deadlines” – MarketWatch
- “Why FATCA Should be Repealed” – UPI
- “Banks Expect To Miss FATCA Deadlines” – Accounting Today
- “Most banks will miss FATCA deadlines” – International Adviser
- “Industry Concerned About Extraterritorial Tax Clampdown Plan” Financial Times
- “KPMG – FATCA Deadline Will Be Missed”
The administration needs money meaning that efforts to repeal FATCA will face a difficult road. Budget analysts say that the new law will raise $800 million. Industry folks estimate the cost of compliance may be significantly greater, however. Unfortunately, increased accounting and bank fees are ultimately born by the taxpayer anyway.
While banks are complaining, some governments are jumping on the bandwagon and have entered into reciprocal agreements with the IRS. Just as the administration wants to combat tax evasion, so do other developed countries like the United Kingdom and Germany.
The voices in opposition continue to grow louder, however, we believe that FATCA will survive largely intact. Only a change in administration could likely lead to the law’s repeal at this point.
Whether or not FATCA is repealed, Americans with unreported foreign accounts are still at tremendous risk. The level of international cooperation is at an unprecedented level and more and more countries are entering into tax exchange agreements allowing the IRS to obtain records from foreign banks.
Remember, that even if FATCA is repealed, U.S. taxpayers are still required to report most foreign accounts and file annual FBARs. The penalty for not filing an FBAR may involve 5 years of prison, a civil penalty of $100,000 or 50% of the highest account balance for each year the account is unreported.
Whatever Congress may do with FATCA has little impact on taxpayers with unreported offshore bank accounts. Bank secrecy is largely dead. If you have an unreported foreign account, now is the time to come forward. The IRS is currently offering an amnesty program (the offshore voluntary disclosure program or “OVDI”) for those taxpayers who have failed to file the required annual FBAR forms identifying their offshore holdings. The penalties are steep (27.5%) for most taxpayers but the program avoids audits, onerous monetary penalties and keeps participants from worrying about criminal prosecution.
We believe the decision to disclose is clear. How one should disclose, however, requires a knowledgable tax lawyer or CPA well versed in foreign reporting issues. Amnesty may not be the best deal for everyone.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at email@example.com. All calls are protected by the attorney client privilege and are kept in strict confidence. Our tax lawyers have helped many taxpayers with a wide variety of foreign reporting issues including FBARs, the new FATCA requirements, tax amnesty, OVDI, voluntary disclosures, foreign gift reporting and Swiss accounts.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS services available worldwide.