Senator Rand Paul of Kentucky introduced a bill to repeal key provisions of FATCA. Passed as part of President Obama’s economic stimulus package, FATCA stands for the Foreign Account Tax Compliance Act. Beginning next year, the law requires foreign banks and hedge funds to identify accounts with ties to U.S. taxpayers.
The IRS and Department of Justice have been cracking down on Americans with unreported offshore accounts. The penalties for not reporting a foreign bank, brokerage or hedge fund account can include prison and a civil penalty of 50% or more of the highest account balance. With a look back period of up to 8 years, those penalties can be severe.
The Bank Secrecy Act and FATCA already require Americans and resident aliens to report their foreign holdings. Compliance, however, has been spotty at best. Many foreign born Americans, ex pats living overseas and dual nationals simply don’t understand the law.
Under the next phase of FATCA, foreign banks will essentially become the eyes and ears of the IRS. Beginning in 2014, foreign financial institutions will be required to review their accounts and report any accounts that ties to the United States. That portion of the law has been immensely unpopular with foreign banks and with taxpayers too. Because some view the new law as so onerous, many foreign banks are simply closing accounts owned by Americans. Thats rough for the thousands of Americans living or retired offshore.
Rand Paul has long been a vocal critic of FATCA. In introducing legislation to repeal portions of the law, Paul said “FATCA is a textbook example of a bad law that doesn’t achieve its stated purpose but does manage to unleash a host of unanticipated destructive consequences. FATCA’s harmful impacts cover the spectrum. It is a violation of Americans’ constitutional protections, oversteps the limits of Executive power, disregards the mutual respect of sovereignty among nations and drains money from the federal treasury under the guise of replenishing it, and discourages overseas investment in the United States.”
While unpopular overseas, it is unlikely that Sen. Paul can gain enough votes to repeal FATCA. Tonight, however, many people are secretly hoping for him to be successful.
We understand that tax evasion is a problem. Unfortunately, the number of tax evaders who deliberately attempt to hide money in secret Swiss numbered accounts is quite small. Many of our clients are dual nationals or recent immigrants – hard working restaurant owners, physicians, computer programmers and store owners. These are people that have foreign accounts in order to send money “home” to family members. Unfortunately, the IRS often treats both the criminals and non-criminals alike.
According to RepealFATCA.com, a similar version of Sen. Rand’s repeal legislation is also being introduced in the House. Although supported by the banking industry, lobbyists and political analysts on Capitol Hill say the bills have little chance of success.
If you have an unreported account, there are options. The IRS is presently running an amnesty program called the Offshore Voluntary Disclosure Program (“OVDI” or “OVDP” for short). For certain ex pats living overseas, people with account values under $75,000 and those who can prove their failure to report was accidental, other better alternatives may be available.
Whatever you do, don’t wait. Once the IRS obtains your name through a foreign FATCA disclosure or otherwise, all bets are off.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Our initial consultation is without cost or obligation.
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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