by Brian Mahany
The crown dependencies of Jersey, Guernsey and Isle of Man are working to shed their reputation as tax havens catering to those who seek to evade tax. All three island states have recently agreed to sign agreements with the United States Treasury in anticipation of the upcoming implementation of FATCA, short for the Foreign Account Tax Compliance Act.
Crown dependencies are an unusual form of government. Although possessions of the British Crown, they are self governed and pass their own legislation. That means each government must ratify any agreement made with the U.S.
All 3 states have developed in recent years into major offshore financial centers. Although not as popular as Switzerland, the crown dependencies have become a destination for Americans seeking asset protection, security and offshore banking.
Opening an account in a foreign country is completely legal if the account is properly reported. Foreign bank and brokerage accounts must be reported annually on a Report of Foreign Bank and Financial Accounts or “FBAR” form. There are significant penalties for not filing FBARs. In certain cases, those penalties could resolve in prison or civil penalties of 50% of the highest balance of the account for each the account wasn’t reported.
Many Americans and dual nationals are unaware of the annual FBAR filing requirement. Beginning next year, the new FATCA law will require foreign financial institutions (banks, hedge funds, brokerage firms and even certain insurance companies) to identify all account holders with ties to the U.S. That could subject tens of thousands of unsuspecting taxpayers to some harsh fines and penalties.
Some folks intentionally hid their money in Jersey, Guernsey or the Isle of Man. For those folks, the tax exchange agreements with the U.S. will be a particularly nasty surprise.
Luckily for both groups of taxpayers with unreported offshore accounts there are amnesty programs that allow taxpayers to come forward and either avoid or pay reduced penalties. Presently there are two amnesty programs – the traditional program called the Offshore Voluntary Disclosure Program or OVDI (OVDP) and a newer program for Americans living overseas. For those that can prove that their failure to file FBARs was not intentional, a regular voluntary disclosure may be the better bet.
There are pros and cons to each program. Some offer the ability to avoid prosecution and audit while others may result in no penalties. Foreign reporting requirements are quite confusing. Consider a good CPA with offshore experience going forward. Already have a problem because of a previously unreported offshore account? Find a tax lawyer. (If you wish to read more information, just use the search engine located in the upper right hand corner of our blog – we have over 100 articles under the search terms FATCA, OVDI and OVDP.)
There are many Americans with accounts located in the three crown dependencies. The parliaments of all 3 are anticipated to sign pacts with the United States in the next few months. To take advantage of the IRS offshore amnesty program you must enter the program before the IRS contacts you or obtains your name from a foreign bank. Time is running out.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. Our tax lawyers concentrate in all aspects of foreign reporting including foreign gift returns, foreign partnerships, OVDI, FATCA and FBARs. All inquiries are 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 (tax only). Services available worldwide.