by Brian Mahany
The IRS released new dates for FATCA compliance. The new timeline delays critical reporting and compliance dates for foreign financial institutions. That’s good news for both foreign banks and U.S. taxpayers with unreported offshore accounts.
FATCA stands for the Foreign Account Tax Compliance Act. Passed in 2010 as part of Obama’s HIRE legislation, the measure imposes additional reporting requirements on individuals and for the first time, requires foreign financial institutions to identify and report account holders with ties to the United States.
The FATCA requirement for individuals is already in effect. This year, qualifying taxpayers were required to file a form 8938 with their income tax return. This is usually in addition to the required Report of Foreign Bank and Financial Accounts or FBAR form. The law covers a wide range of foreign financial instruments including bank accounts, brokerage accounts, foreign real estate owned by a corporation, certificates of deposit and even some insurance products.
Foreign banks and hedge funds were to begin notifying the IRS about US account holders in 2013. With the newly announced delays, those timelines have been extended.
Preexisting accounts must now be reviewed by June 30, 2014. New accounts must follow the enhanced due diligence requirements by January 1, 2014. These deadlines may be modified if the IRS has negotiated an agreement directly with the bank or government where the bank is located.
Many U.S. taxpayers are unaware of the foreign reporting requirements and the massive IRS penalties associated with unreported accounts. Penalties that can include prison and $100,000 per year per unreported foreign account! The extension of the dates for mandatory reporting by foreign banks gives Americans a bit more time to come into compliance.
The IRS is currently running an amnesty program which allows participants to avoid some of the harsher penalties. (The program is called the Offshore Voluntary Disclosure Program – for more details, simply type “OVDI” in our blog search engine in the upper right hand corner.) More streamlined programs for those with smaller accounts (aggregate balance under $75,000), Americans who inherited a foreign account and ex pats living overseas. In some instances, amnesty may not be the best option. With so many choices and such high stakes, we recommend consulting with an experienced tax attorney specializing in offshore reporting.
The delays in reporting are also welcome news for foreign banks and hedge funds. When faced with short timelines and tremendous risk – the banks can be fined for not complying – many foreign institutions simply elected to close the accounts of Americans. That creates a hardship for the thousands of Americans living overseas.
The tax lawyers at Mahany & Ertl represent both foreign financial institutions and taxpayers. Earlier this year, the CPAmerica organization of accounting firms named us their exclusive legal services provider for foreign reporting and FATCA compliance. In many instances, our fees can be offered on a reasonable flat fee basis meaning certainty and predictability (and no worries associated with open ended billing arrangements.)
For more information, give us a call. Individuals should contact attorney Bethany Kroes at . Banks and hedge funds can contact attorney Wassim Malas at . We can also be reached by telephone at (414) 223-0464. All inquiries protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. IRS legal services available worldwide.