by Brian Mahany
As the implementation of FATCA looms, many foreign banks are simply telling Americans to take their money elsewhere. Although taxpayers have had to disclose foreign bank and brokerage accounts for years, the system relied on voluntary compliance. Recently, Congress ordered foreign banks to begin identifying U.S. taxpayers with offshore accounts. Those rules begin to take effect next year.
While many banks are simply closing accounts that belong to Americans, Bank Leumi of Israel recently told clients they must fill out a declaration this month indicating the account has been declared to the IRS. If customers refuse, Bank Leumi says they will freeze the account.
The actions of the Israeli bank have created some tension and anger. Apparently, customers were given very little warning. Many customers are finding it difficult to find good advice on their options and legal obligations.
Recently we have been innundated with calls from taxpayers with accounts in just about every corner of the world. Many taxpayers had no idea that foreign accounts had to be reported. Failure to file an annual FBAR (Report of Foreign Bank and Financial Account) carries a penalty of up to 50% of the highest account balance for each year the account was unreported! Willful violations can carry a 5 year prison sentence as well.
There is an foreign account amnesty program offered by the IRS (the 2012 Offshore Voluntary Disclosure Program or “OVDI”) but those penalties are not very attractive either. Some taxpayers are better off taking their chances with the IRS through a traditional disclosure or “opt-out.”
If this seems very confusing, it is. Even many experienced CPAs are having a tough time understanding the hundreds of pages of new regulations.
The tax lawyers at Mahany & Ertl concentrate in offshore tax reporting. Most of services can be handled on a flat fee. If you have questions on the new FATCA law, FBARs, foreign reporting, foreign gifts and partnerships, OVDI or amnesty, give us a call.
Mahany & Ertl – America’s Tax Lawyers. Offices in many locations. IRS legal services available worldwide.