by Brian Mahany
The above quote comes from comments made by one accounting professional in response to a recent speech by IRS Commissioner Doug Shulman to the Financial Accounting Foundation. Shulman claims that the IRS has listened to all stakeholders when developing regulations for the new Financial Account Tax Compliance Act (FATCA) but many expats, Canadian Americans and Indian Americans disagree.
The purpose of FATCA is to force foreign financial institutions (offshore banks and foreign brokerage firms) to identify and report the identities of U.S. taxpayers with overseas accounts. Hundreds of thousands of taxpayers fail to report those accounts, and often the income generated from them, on their U.S. returns. Although ownership or an interest in a foreign account is perfectly legal, taxpayers must file annual FBARs (Report of Foreign Bank and Financial Account) and this year, FATCA forms. Failure to do so may be criminal and can result in huge civil penalties.
Some taxpayers deliberately open offshore accounts to hide money from the IRS. Most, however, do so for valid business reasons, to diversify their portfolio, because of perceived risks in the U.S. banking system or because they live overseas or send money “home” to family there. The new regulations don’t discriminate between the two groups.
There are many unintended consequences of FATCA. Many foreign banks are simply canceling the accounts of Americans. They don’t want the administrative burden of complying with IRS rules and think that Uncle Sam is overreaching when it tries to regulates banks in foreign countries. That means that Americans living in Canada or China, Indian dual nationals with bank accounts and family in India and parents with kids in school in Europe are suddenly getting notices that their account is being closed.
Lest you think that we are a bit cynical of the current US enforcement efforts, even the National Taxpayer Advocate has complained that the IRS has been overreaching. Our system of criminal prosecution, huge penalties (50% of the high account balance for each year the account was unreported) and a “guilty until proven innocent” attitude lumps the millions of Americans living abroad, dual nationals and foreign born Americans into the same lot as the few deliberate tax cheats.
Whatever your motivation, time is running out for those with unreported accounts. Simply closing the account and moving the money back to the U.S. does not eliminate the problem. If you have unreported foreign bank or stock accounts, act now.
The IRS is currently running an amnesty program called the 2012 Offshore Voluntary Disclosure Program (often called “OVDI” or “OVDP”). There are opt out and traditional voluntary disclosure programs that might even better for those who don’t mind an audit and can show their noncompliance was not innocent. Whatever you do, don’t delay. All bets are off if the IRS finds you first.
The tax attorneys at Mahany & Ertl concentrate in foreign reporting and offshore tax compliance. For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . All inquiries kept in strict confidence.
Mahanay & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine & Minneapolis, Minnesota. IRS tax services available worldwide.