by Brian Mahany
WIth just a few more months to go before offshore banks must begin complying with the Foreign Account Tax Compliance Act, the IRS has been scrambling to get cooperation from other nations. Last week Japan became the newest country to pledge its cooperation with the U.S.
FATCA requires foreign banks to disclose the identities of all account holders who are also U.S. taxpayers. In many countries, such disclosure violates that nation’s bank secrecy laws. Banks have been caught in the middle. If they comply with the IRS and the new FATCA law, they may be violating their own law. Don’t comply with FATCA and they could face stiff penalties from the IRS.
Most of the developed nations have indicated they will cooperate. That means banks in those countries will have to identify and report Americans holding accounts. Because compliance is expensive, many banks are simply eliminating the hassle by closing foreign accounts.
Japan is the latest country to indicate its willingness to cooperate. That means that U.S. taxpayers with unreported accounts in Japan could soon be in hot water with the IRS. Although foreign accounts are legal, the penalties for not reporting those accounts are steep.
Foreign bank and financial accounts (CD’s, brokerage accounts, most retirement accounts, etc) must be reported annually to the IRS on Report of Foreign Bank and Financial Account, more commonly known as an FBAR. Failure to file FBARs can be criminal and result in penalties of $100,000 or 50% of the highest account balance for each year the account remains undisclosed.
Some folks intentionally used offshore banks as a way of hiding money from Uncle Sam. Most folks with unreported accounts, however, simply do not understand the law. Often, people immigrate into the U.S. but leave family behind. That often means keeping a bank account “at home.” Others are dual nationals or green card holders. Sometimes Americans retire to foreign countries or work there and need a local bank account.
If you have an account in Japan that hasn’t been properly reported, you do have options.
The IRS is a running an amnesty program called the Offshore Voluntary Disclosure Program or “OVDI” for short. The penalties are pretty steep but only imposed on one year. Participants also avoid audits and prison.
If you can demonstrate that your failure to report was not willful, the penalties can often be much lower. That usually involves an audit and negotiation with the IRS. These so called traditional disclosures are not for everyone but they can save high penalties.
The other option, of course, is to do nothing. Once caught, however, it sis too late to seek the tax amnesty program. OVDI is available on a first contact basis. If the IRS finds you first, then amnesty is no longer an option.
The tax lawyers at Mahany & Ertl have helped many Americans, dual nationals, foreign born Americans and green card holders with a wide variety of foreign reporting problems. For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are confidential and protected from disclosure by the attorney – client privilege.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Minneapolis, Detroit & Portland. IRS tax services available worldwide.