by Brian Mahany
Most of our posts are designed to help folks understand tax laws and to prevent people becoming victims of fraud. Although we often have strong opinions on tax policy, we try not to politicize this blog. Uncle Sam’s relentless pursuit of unreported foreign bank accounts and offshore income has generated many strong opinions, however. Some say the new Foreign Account Tax Compliance Act (“FATCA”) is unconstitutional while others say “it’s about time”. One reader directed us to an interesting article in American Spectator which suggests the law helps foreign dictators.
FATCA has both an individual and foreign bank component. This year, individuals who meet certain income thresholds are required to report any interest in a “foreign financial asset” to the IRS. The FATCA requirements go beyond the existing FBAR regulations which primarily apply to foreign bank and brokerage accounts.
Soon, foreign banks will be required to share account identity data with the U.S. Treasury. Banks that don’t cooperate will effectively be excluded from doing business with U.S. banks and those of other cooperating countries. Both parts of the law have generated controversy.
A recent article in American Spectator suggests that these information exchange requirements will aid foreign dictators. Because the information exchange agreements under FATCA are reciprocal, U.S. banks will supply information to other countries about foreigners having accounts in the U.S. There are many foreign students, doctors, and others who live and bank here but are citizens of another country.
The article worries about foreign dissidents who bank here to protect their money from their home government. According to the article many bank accounts in Florida are owned by citizens of Cuba and Argentina. Syrians living here who support the opposition movement could also find themselves in trouble at home once the bank disclosures begin.
When government passes major new laws there are always many unintended consequences. Already we are receiving calls from other lawyers and CPAs concerning the definition of “foreign financial assets.” Unfortunately the new regulations were not even released until the income tax filing season had already begun. These rules leave many unanswered questions too.
If you have foreign reporting questions, consult someone who truly understands the law. Simply talking to a tax lawyer or preparer isn’t enough. The penalties for noncompliance are huge – $10,000 for FATCA violations and up to 50% of the highest account balance for FBAR violations and those penalties are per year! Willful violators can find themselves in prison.
The tax lawyers at Mahany & Ertl provide solutions to taxpayers with a wide range of IRS problems including offshore reporting issues: FATCA, FBAR, tax amnesty, foreign partnership and corporation returns, OVDI, voluntary disclosures and criminal tax investigations.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS tax services available worldwide.