“We don’t like FATCA and we don’t want it, but we don’t have a choice,” said Abdulaziz al-Ghurair, chairman of lobby group the UAE Banks Federation. That quote appeared earlier this week in a Reuters wire story about FATCA, the Foreign Account Tax Compliance Act. Bankers in the United Arab Emirates aren’t the only ones complaining about the 2010 U.S. law scheduled to be implemented in 2014.
FATCA requires foreign financial institutions to examine their customer accounts and report those with ties to the United States. Several other countries are now pursuing similar laws. The goal of the legislation is to reduce offshore tax evasion. Many say the costs of implementing the new law outweigh any increases in tax revenues. Only time will tell.
Technically, the IRS can’t regulate foreign banks unless the bank has branches within the United States. The U.S. government can make it prohibitively expensive for banks to do business here, however. As other nations pass similar laws, the international pressure to comply mounts.
Privacy advocates believe the law goes too far. Inn many countries, complying with FATCA violates local privacy and bank secrecy rules. Most countries have signaled an intent to sign intergovernmental agreements with the United States to permit the exchange of information.
According to the Reuters article, African and Arab banks are having particular difficulty in getting ready for FATCA. Many banks do not have the compliance infrastructure in place to handle the new internal review requirements. Banks that don’t comply, however, may face penalties in the form of withholding. Some bankers are afraid of criminal prosecution, not an unreasonable fear in light of the Justice Department’s prosecution of both banks and bankers.
A banker from Abu Dhabi claims that the variations in Arab names means even more headaches for banks there. Having previously worked in the UAE, we know that is a legitimate concern. While the typical American spells his or her name only one way, many Arab names have multiple spellings.
Are these folks engaging in tax evasion? Probably not but it is an extra headache for banks trying to comply with FATCA.
The implementation date of FATCA has been extended twice before. With implementation now scheduled in just a few months, there are no rumors of a third extension. That means foreign banks and brokerage firms must really hustle if they are to meet the law’s deadlines.
If you have unreported foreign accounts, there are ways to come into compliance and avoid the serious penalties associated with FBAR violations. The IRS can impose a penalty of 50% of the highest account balance for each year an account is not properly reported. With FATCA just 6 months away, time is truly running out to come into compliance and avoid some of the harshest penalties in the tax code.
We welcome questions about FATCA, FBAR and foreign reporting issues and will gladly explain your responsibilities and explore your options. Our FATCA attorneys have helped many taxpayers with a wide variety of offshore reporting problems.
For more information, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The author may also be contacted at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence. Our IRS tax services are available worldwide.
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Post by Brian Mahany, Esq.
tag as: FBAR lawyers – FATCA attorneys – Offshore Voluntary Disclosure Program – IRS tax attorneys