Most people in the United States have never heard of FATCA – the Foreign Account Tax Compliance Act. For many decades, U.S. taxpayers have been required to report offshore financial assets including bank and brokerage accounts. The law wasn’t really enforced until recently and many dual nationals and Americans living overseas didn’t even know they were required to report certain financial assets. FATCA is changing all of that and the sudden changes are making life difficult for American expats living overseas.
In 2010, Congress passed FATCA which aims to make foreign banks and financial institutions the eyes and ears of the IRS. Beginning in 2014, these institutions will be required to review their account base and report any account with ties to the United States. The law is so broad that even accounts in the name of a business or trust must be disclosed to the IRS if an owner or person with signature authority is a U.S. citizens or lives in the U.S.
As the FATCA implementation date draws near, many foreign banks have simply decided that the paperwork burden and potential liability risks are too high. Instead of complying, they are forcing Americans to close their accounts. For Americans living overseas, this is a real hardship.
Americans living in major metropolitan areas probably can find another bank but for those living in smaller towns, the situation is growing desperate.
It’s not just Americans that are feeling the FATCA pinch. Non resident aliens (green card holders) and dual nationals living offshore are also feeling the pressure. Because these folks are technically U.S. taxpayers, they are equally subject to FATCA and many banks don’t want the reporting responsibilities associated with these customers.
Recently we learned of expats who are having their mortgages cancelled. Although it has not happened to any of our clients, we understand the rationale behind the bank’s decision. Luckily, these problems are rare.
The biggest risk of FATCA to expats is the IRS. Many expats have not filed Reports of Foreign Bank and Financial Accounts – FBAR for short. Failure to file an FBAR could be a felony. Although the risk of getting extradited to the U.S. and going to jail isn’t great, the risk of an IRS penalty assessment is very real and those assessments are huge – the greater of $100,000 or 50% of the highest account balance for any year the account was not properly reported.
If you have an unreported foreign bank account, hedge fund, commodities account (gold or silver), brokerage account, certificate of deposit or even certain annuities and foreign retirement accounts, see legal help NOW. There are ways to minimize or eliminate penalties but those may disappear once FATCA fully kicks in.
Why? Because the IRS says it is only willing to consider amnesty for those who come into compliance before they are caught. Once banks begin reporting under FATCA, it is probably too late to seek amnesty protections.
If you have an unreported financial account, give us a call. Even if you do not hire us we will still help you explore your options. Our tax lawyers have helped many taxpayers with a wide variety of offshore reporting problems. From unfiled FBARs to the new FATCA legislation to the current offshore account amnesty program, we can help.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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Post by Brian Mahany, Esq.