by Brian Mahany
Our relations with Russia may be a little chilly these days but the Russian banks are working up plans to cooperate with the new Foreign Account Tax Compliance Act (FATCA) which comes on line for foreign banks and financial services firms in 2014. Russia’s Presidential Economic Advisor, Elvira Nabiullina, has been coordinating with the Russian central bank, National Payment Council, finance ministry and Russian Federal Tax Service. (The National Payment Council is an industry group representing banks.)
According to the Russian newspaper, Izvestia, a spokesperson for SMP Bank said, “[The banks] have no choice, though, since they will otherwise become outcasts: compliance with FATCA has been virtually accepted by the global community.”
Why would Russia cooperate? Besides the obvious – banks that don’t face being shunned worldwide – Russia is considering an intergovernmental treaty with the U.S. in which Russian banks turn over information to the IRS and American banks turn over information about Russians with accounts in the United States.
Although most readers are too young to remember World War II, Americans and Russians had an uneasy peace during the war. Our common bond was fighting the Nazi’s. Seventy years later, relations between the two countries are still strained. But when money is involved, the tax authorities are able to found common ground. Of course, taxpayers with unreported accounts in either country will be the losers.
Taxpayers with offshore accounts are required to report them annually on an FBAR form (Report of Foreign Bank and Financial Accounts). This year, some taxpayers must also report them on their income tax return as well. The law includes foreign banks, CD’s, brokerage accounts, offshore hedge funds and even certain insurance products.
Failure to report a foreign account may be a felony punishable by up to 5 years in prison. Civil penalties can include the greater of $100,000 or 50% of the high account balance for each year an account is unreported.
Most of our clients simply didn’t understand the foreign reporting requirements. These folks include dual nationals sending money “home” to family and Americans who retire outside the United States. There are many ways to come into compliance and sometimes all penalties can be waived. For some, the best option is the current IRS tax amnesty plan called the Offshore Voluntary Disclosure Program or “OVDI” / “OVDP.” Because the stakes are so high and rules complex, we strongly recommend that you speak with a tax lawyer right away if you have an unreported account.
The tax attorneys at Mahany & Ertl have helped many taxpayers with a wide variety of offshore reporting issues. From the new Foreign Account Tax Compliance Act (FATCA) to OVDI, FBARs, foreign gifts and foreign held real estate, we can help. In most instances, our services can be handled for a reasonable flat fee.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine, Minneapolis, Minnesota and coming soon, San Francisco, California. Services available worldwide.