by Brian Mahany
The Foreign Account Tax Compliance Act (FATCA) doesn’t have many friends these days. Tens of thousands of taxpayers – mostly foreign born Americans, dual nationals, green card holders and Americans living abroad – were caught completely unaware of the foreign reporting requirements. Despite a PR campaign by the IRS, many still are unaware. Unfortunately, the penalties for an unreported account can include 50% of the high balance of the account for each year it wasn’t disclosed.
Foreign banks and hedge funds hate the law too. It is extremely burdensome and costly. In fact, many foreign banks have decided to simply close the accounts of their American clients rather than go through the expense and hassle of complying.
Accountants and many lawyers don’t always understand the rules, either. That means as the IRS gets more aggressive, more and more professionals are going to find themselves becoming defendants in malpractice suits because of their bad or wrong advice.
Now, even Congress is starting to wake up. Congressman David Reichert (Washington), a member of the powerful House Ways and Means Committee, sent a letter last month to IRS Commissioner Douglas Shulman. In his letter he noted the rising concerns from all sides. “I have watched closely the evolution of FATCA over the past months. I have talked with constituents, had discussions with international companies who are looking to comply with the new law, and had conversations with many who both wonder how successful these new policies will be in achieving their intended consequences and what the scale and nature of the inevitable unintended consequences may be,” said Reichert.
While much of the complaining has been from taxpayers and foreign banks, Reichert questioned how FATCA might hurt the sale of U.S. Treasury securities. Much of our treasury bonds are sold to foreigners. Will fears of reciprocal taxation and improper withholding get buyers away? Banks that don’t comply are subject to a stiff tax by the IRS. Reichert worries that some foreign banks may simply avoid buying Treasury bonds for fear that a FATCA mistake may subject them to tax.
Whenever a broad new tax scheme is unveiled, there are always unintended consequences. Foreign financial institutions were originally scheduled to begin complying with the new law in 2013. The IRS, however, recently extended the compliance date for foreign banks. Hopefully the extra time will allow some of the “unintended consequences” to be identified and resolved before they occur.
The international tax lawyers at Mahany & Ertl represent both taxpayers and financial institutions. If you have questions or concerns about FATCA, FBARs, foreign owned real estate or similar issues, give us a call. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. IRS tax reporting services available worldwide.