by Brian Mahany
This is our fourth story on the Cyprus banking meltdown but the last several posts have hit a raw nerve judging by the calls we have received. Many people previously worried about whether their offshore accounts would be discovered are now worrying about how safe their funds are. And with good reason.
The title of today’s post comes from a quote appearing in today’s Wall Street Journal. An immigrant from Russia, Nataliya Yazykova and her husband settled in Cyprus. Overnight, they stand to lose their life savings. Under the final bailout plan, people with more than $130,000 USD in the Bank of Cyprus will see their money remain frozen indefinitely. Ultimately they will get back some cash and receive the balance in shares of the bank. For depositors at Cyprus Popular Bank, the news is worse… their holdings will become claims on the bank’s bad assets. Given Cyprus’ spiralling economy, they may only see a few cents on the dollar in the immediate future.
Several of the people that have called us wonder if this is a “one time” freak event. It isn’t. Remember just 5 years ago when Iceland’s biggest banks failed. Once again, many foreign investors were caught by surprise.
Originally Cyprus planned to bailout the banks and impose a one time levy on the accounts. That number fluctuated between 6% and 40% depending on who was announcing the plan. While some called it a one time levy, we call it a tax. Either way, the plan was ultimately scrapped and the decision was made to simply protect depositors with balances under $130,000.
That’s good for them but many people with money in Cyprus’ two largest banks were foreigners; people who were attracted to Cyprus’ reputation as an international financial center. Overnight, Cyprus’ reputation and their cash were wiped out.
What does all of this have to do with FATCA? Plenty.
Beginning next year, foreign banks must identify and disclose accounts with ties to the United States. The FATCA law – short for the Foreign Account Tax Compliance Act – has caught many people off guard. Some folks, however, are already trying to game the system and move money from FATCA compliant jurisdictions like Switzerland to countries that have yet to sign on with the IRS. They are more worried about not getting caught.
The real concern should be the safety of their money.
Opening an account in a foreign country is completely legal if properly reported. Federal law requires U.S. taxpayers and green card holders to annually report foreign bank accounts, hedge funds, CD’s, financial investments and brokerage accounts. These accounts are reported on a Report of Foreign Bank and Financial Account or FBAR form. Failure to file an FBAR is a crime and also carries steep civil penalties.
Out of fear of losing their accounts, some people are trying to quietly amend old returns or repatriate their money. The IRS says that neither plan will work and is asking foreign banks for prior year records to detect such transfers.
There is an amnesty plan available for those with unreported returns as well as other alternatives for those who can prove their failure to file an FBAR was not intentional. Rather than moving money all over the globe, smart investors are coming into compliance and making sure their money is safe.
The new FATCA regulations, amnesty programs and recent banking crisis in Cyprus make this an ideal time to become compliant and secure your financial future. Otherwise, you may be repeating what Ms. Yazykova said, in “just one moment” everything was lost.
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. The consultation is free and most services can be handled on a flat fee basis.
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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