by Brian Mahany
While some analysts still believe Obama’s FATCA law is in trouble, last week 5 of Europe’s biggest economies agreed to create their own FATCA law. Although the United States has considerable world wide economic clout, adding the combined economies of Great Britain, Germany, Spain, France and Italy really signals that FATCA is here to stay.
For those unfamiliar with the law, FATCA is short for the Foreign Account Tax Compliance Act. Passed in 2010 by Congress, the law requires foreign banks to report accounts that have ties to the United States. The IRS has power to enforce its laws over banks and financial firms with offices inside the U.S. but has little power over foreign companies. The law really needs most countries to come on board and signed required intergovernmental agreements with the IRS.
If a foreign country refuses to comply, the IRS can make it difficult and expensive to transact business here.
As of early April, 75 countries had signed FATCA agreements with the U.S. or were in negotiations to do so. There are some notable hold outs such as Austria. With 5 of the biggest European nations poised to create their own FATCA style law, the pressure is really mounting for hold out nations.
U.S. law has long required taxpayers to identify offshore financial accounts. Until the investigation of UBS in 2008, however, the law was often not enforced. As the world grows smaller and we become an increasingly mobile, its common to find millions of Americans with foreign accounts – these include American ex pats who retire overseas, dual nationals, foreign born Americans, resident alien physicians (green card holders) and Americans with offshore hedge fund holdings. Holding or having signature authority over a foreign account is legal if the account is properly reported.
Foreign accounts must be reported each year on a Report of Foreign Bank and Financial Accounts (also known as an FBAR). Failure to file an FBAR is a criminal offense if willful and carries huge civil penalties — as much as $100,000 per year per account or more for each year an account is not reported.
FATCA is designed to help the IRS learn the whereabouts of foreign accounts. Beginning next year, offshore brokerage firms, hedge funds, banks and even some insurance companies will be required to identify accounts with U.S. owners or with statements being mailed to U.S. addresses.
With more and more countries signing agreements with the IRS – or developing their own FATCA style laws – the days of banking secrecy are almost over. There is little time to take advantage of IRS amnesty programs.
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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