Like it or not, FATCA is here to stay. Many folks will disagree that premise but in our humble opinion, the law has too much momentum at this point. Add to the mix is the simple truth that the United States is still the 800 lb gorilla in the room. It’s our idea and most countries heavily rely on us for trade and economic support. They may hate the law but most will comply.
FATCA is the Foreign Account Tax Compliance Act, a 2010 law designed to promote tax transparency. The goals of the new law are laudable. Some of its methods are questionable, however.
American taxpayers are already required to report certain specified foreign financial holdings. For an in depth explanation of the IRS offshore reporting rules, read our story FBAR 101.
Beginning in 2014, the second phase of FATCA begins. Foreign financial institutions inclosing foreign hedge funds, offshore banks, foreign insurance companies and overseas brokerage firms will be required to perform due diligence on their customer base and report those account holders with ties to the United States. Owning a foreign account is completely legal but not reporting that account can be a felony.
An article last week in American Thinker written by Ryan Rommann claims that FATCA is a scarlet letter for those Americans living abroad. He may be right.
We have heard many reports of Americans who are suddenly finding that offshore banks will no longer accept their money. Banks in Israel, Switzerland and dozens of other countries are closing accounts instead of complying with the new FATCA rules. While that doesn’t affect most Americans, it has a huge impact on the millions of American expats living overseas and business people who live here but have employees in other countries. In Rommann’s words, “If you are an American living or working in Switzerland, for example, you can say “goodbye” to innocent until proven guilty. The default bank response will be to assume you are Al Capone, because actually trusting an American client could elicit a hefty IRS fine in the future.”
Rommann raises another serious concern. He wonders that if long term, many foreign banks will simply stop doing business in the United States thereby hurting our already fragile economic recovery.
The world is clearly moving to greater transparency. We support that movement. Penalizing individuals who have no understanding of the law and imposing costly measures on foreign banks is probably not the solution to the problem, however.
The penalties for a U.S. citizen or taxpayer (the latter includes dual nationals and green card holders) can be as high as $100,000 or 50% of the highest balance for each unreported account. Although other countries are now considering their own FATCA like laws, for years the United States was just one of two countries that required world wide reporting. People from other countries and cultures simply don’t understand our tax system. And they are not alone – recently the IRS’ own taxpayer advocate and the GAO gave the IRS bad marks for educating taxpayers about their foreign reporting requirements.
For now, Rommann says “American citizenship should always be a badge of honor, but FATCA is making it a scarlet letter.”
If you have unreported foreign bank accounts and have not filed an FBAR (Report of Foreign Bank and Financial Accounts), contact us immediately. There are several government programs including an amnesty that can help minimize penalties and avoid audit and criminal prosecution (don’t panic – for most people the risk of prosecution is remote.)
Although willful failure to report a foreign account and file an FBAR is a felony, the real risk for most taxpayers are the huge civil penalties. With the IRS routinely claiming half of one’s foreign account as a penalty, the risks are too great to ignore.
If you have an unreported foreign bank or brokerage account, speak an experienced FATCA attorney today. Our lawyers have helped many taxpayers avoid huge penalties.
FATCA Compliance Next Steps
Taking action and getting off the fence is the most important first step. Once FATCA is fully implemented next year and foreign banks begin reporting accounts, it may be too late for many of the IRS amnesty programs.
Worried about the cost? Our rates are half the big firms and our work can usually be done on a flat fee basis.
To learn more about your options, contact attorney Bethany Canfield at or by telephone at (414) 223-0464. The initial consultation is free and can be done by telephone. The author can also be contacted at or by telephone at (414) 704-6731 (direct).
Post by Brian Mahany, Esq.
Ed. Note – We have dozens of articles on FATCA and FBAR compliance on our blog. Use the search feature in the upper right hand corner.