Bloomberg reports the IRS is setting its sights on unreported foreign retirement plans. Most of the world is finally catching on that the IRS is serious about unreported offshore bank accounts. Many other countries are racing towards greater exchange of financial information and transparency too. Unfortunately, compliance remains very low when dealing with foreign retirement and pension plans
The IRS has long required U.S. taxpayers to report foreign financial accounts on a Report of Foreign Bank and Financial Account – FBAR for short. Beginning next year, the new FATCA law requires foreign banks and other institutions to report account holders with ties to the United States. Many folks don’t know that the FBAR requirement includes many types of financial accounts beyond traditional bank accounts. The FBAR rules, however, include many types of financial accounts including foreign retirement plans, annuities and deferred compensation plans.
The IRS and Treasury Department have issued thousands of pages of rules, regulations and forms relating to offshore reporting. The banking industry is quickly coming into compliance but other sectors of the financial sector such as hedge funds, retirement plans and certain portions of the insurance industry are largely unaware of the new reporting requirements. The retirement industry has unique compliance issues because of many country specific treaties and intergovernmental agreements. That means the rules differ from country to country.
Adding to the difficulty is the decision to treat certain financial institutions in U.S. territories as “foreign” for purposes of FATCA and FBAR filing requirements.
The new rules affect both the retirement plans and taxpayers. Beginning next year, FATCA requires many financial institutions including certain retirement and deferred compensation providers to identify and report U.S. account holders. The Bank Secrecy Act already requires individual taxpayers to report these same accounts annually by filing an FBAR.
Penalties for not filing an FBAR can include prison and huge civil penalties. It is doubtful that holders of unreported foreign retirement plans will be criminally prosecuted but holders of annuities and deferred compensation plans may not be so lucky.
FBAR Next Steps
What does this mean for plan administrators and retirees? If you operate a foreign pension plan, retirement plan, deferred compensation plan or issue annuities, contact an accountant or tax lawyer well versed in offshore reporting requirements. This includes financial institutions based in U.S. territories. If you are a taxpayer, don’t wait for the IRS to find you. Many amnesty and voluntary disclosure options are off the table and not available if the IRS finds you first.
The new rules are already complex enough. With so many country specific treaties and intergovernmental agreements, there is no “one size fits all” approach. Doing nothing, however, can subject both taxpayers and financial institutions to severe penalties and withholdings.
If you have an unreported foreign retirement account and wonder if you must file an FBAR, give us a call. We have helped many taxpayers with a wide variety of foreign reporting problems. In many cases it is possible to avoid all or most penalties. We also help banks, hedge funds, insurance companies and retirement plan administrators comply with the new US FATCA reporting obligations.
For more information, contact attorney Brian Mahany at or by telephone at (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
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.