U.S. taxpayers are required to report offshore financial holdings. This includes bank accounts, certificates of deposit, offshore brokerage accounts and even some life insurance products. Reporting is done annually on a Report of Foreign Bank and Financial Accounts, more commonly known as an FBAR form. (Depending on how those assets are held, there may be a host of other forms required as well.) While some people think of secret numbered Swiss bank accounts when thinking about offshore finances, many Americans have accounts, hedge fund holdings and insurance products in the Cayman Islands.
Coming directly on the heels of the IRS’ agreement with Switzerland to access Swiss bank records, the United States and the Cayman Islands have reached a similar accord. The Caymans becomes one of the newest countries to sign on to the Foreign Account Tax Compliance Act (FACTA). Congress passed FATCA in 2010 to require foreign banks and financial institutions to provide information about accounts with ties to the United States.
The IRS hopes that FATCA will force more people to comply with the existing FBAR laws. Failure to file an FBAR can subject taxpayers to prison (unlikely) or fines as high as $100,000 or 50% of the highest account balance over the last 8 years. FATCA imposes penalties on banks that don’t turn over records.
Quickly, the traditional bank secrecy jurisdictions such as the Cayman Islands are becoming more transparent. At the same time, the IRS is getting much better at ferreting out unreported foreign accounts.
In announcing the decision to join FATCA last month, Cayman’s Minister for Financial Services Wayne Panton said, “As an international financial centre that contributes to the efficient functioning of global markets, the initialling and subsequent signing of the [FATCA agreement] with the United States will again demonstrate Cayman’s commitment to engage in globally accepted tax and transparency initiatives”.
In lieu of individual banks and other financial firms directly reporting to the IRS, the Cayman government negotiated to be the collector of information. They will then provide the information to the IRS.
The automatic reporting provisions of FATCA and the agreement with the Cayman Islands begins next year. Banks will be required to do a look back to catch anyone who simply elected to close their account or transfer their money in anticipation of the new law.
If you have an unreported account in the Cayman Islands or elsewhere, contact an experienced offshore reporting attorney right away. There are ways to minimize or even eliminate penalties but many of those special amnesty programs become unavailable once FATCA kicks in and banks start turning over records.
If you need more information about FBAR reporting issues, we offer no cost consultations. All inquiries are protected by the attorney – client privilege too. For more information, contact attorney Bethany Kroes at 414-223-0464 or by email at . You may also contact the author at (414) 704-6731 or by email at .
Post by Brian Mahany, Esq.