by Brian Mahany
The IRS has negotiated tax exchange agreements with most nations. Even some of the more notorious tax havens have now entered agreements or have pledged to address inquiries from U.S. officials. The next wave of offshore enforcement tools was announced this week. The United States, Spain, France, Italy, Germany and the United Kingdom have entered into a FATCA partner agreement. (FATCA is an anacronym for the Foreign Account Tax Compliance Act.)
Under the pact, the member nations will collect information from local banks about U.S. taxpayers with more than $50,000 in bank or other financial accounts in their country and turn that information over to the IRS. The U.S. will in return collect information from American banks about account holders in those jurisdictions.
The pact does not replace existing tax exchange agreements. The existing agreements allow the IRS to request specific information from foreign authorities. For example, if the U.S. was interested in account holders at a specific offshore bank, our government could seek assistance from the host country government to obtain the records.
As we understand the new FATCA pact, the participating governments will collect information on all U.S. account holders with accounts in their country.
Treasury officials say that they are exploring enhanced reporting relationships with additional foreign governments. The six nation pact is likely to grow. The lack many participants does not mean that taxpayers with hidden offshore assets should breathe a sigh of relief. The traditional tax exchange agreements and discovery techniques are still in effect.
The FATCA reporting requirements for U.S. taxpayers took effect this year. Next year foreign financial institutions will become subject to the new law. Unlike the FBAR (Report of Foreign Bank and Financial Account) rules which are geared towards bank and brokerage accounts, FATCA covers specified “foreign financial assets.” The new rules slated to take effect in 2013 affect not only banks and brokers but also include private banks, hedge funds, offshore LLC’s and partnerships, foreign intermediaries and others.
If you have an unreported foreign account act now. Not sure if your foreign financial asset is also covered by FBAR? Find out soon. The penalties for having an unreported offshore account could involve prison and a $100,000 fine or 50% of the high account balance if the violation was willful. FATCa violations also include steep penalties.
Presently there is an amnesty for taxpayers that have failed to file FBARs and pay tax on foreign income. The amnesty isn’t for everyone but does reduce penalties and avoids prison. The FATCA requirements kick in this year when you file your 2011 tax return.
For more information, contact attorney Brian Mahany at (414) 704-6731 (direct) or by email at . All inquiries are kept in strict confidence and are protected by the attorney – client privilege. The tax attorneys at Mahany & Ertl have helped many businesses and individuals with offshore reporting requirements. We also assist taxpayers with the voluntary disclosures and the 2012 tax amnesty program called the Offshore Voluntary Disclosure Program.
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