by Brian Mahany
All the FATCA news this month has been about Switzerland. Even we got in on the action after the Swiss finance ministry signed a FATCA agreement with the United States. FATCA is short for the Foreign Account Tax Compliance Act, a law recently passed by Congress that requires foreign banks to share information with the United States. The goal of the new law is to help the IRS discover Americans and other U.S. taxpayers with unreported foreign accounts.
Switzerland has long been viewed as a bank secrecy jurisdiction meaning it is a place where people go to hide money. That can be a felony if the money is hidden from the IRS. Many people also move money to Switzerland because of its international banking reputation and the perception that Swiss banks are more solvent than their U.S. counterparts. (We agree with the latter.)
Most U.S. taxpayers with foreign accounts are not people hiding money in Switzerland however. They are foreign born Americans, dual nationals, American ex pats that have moved overseas, Americans with family or business interests abroad and sometimes students going to school in foreign countries. [Ed. Note – In 2011, one of my siblings attended the Nelson Mandela University in South Africa.] That makes the FATCA agreements with other countries extremely important even though they receive little press.
South Africa’s National Treasury and the South African Revenue Service (SARS) announced 2 weeks ago that they have begun talks with the United States. By 2014, South African banks must begin reviewing accounts and reporting those accounts with ties to the United States. Many countries have begun negotiating intergovernmental agreements to ease the regulatory burden on their banks.
A press release from SARS said that South African banks support the move. The agreement will probably be signed with little opposition.
What does this mean for people with accounts in South Africa? Plenty!
Opening an account in South Africa is not illegal if the accounts is disclosed to the IRS. Foreign bank and other financial accounts (brokerage, CD’s, cash value life insurance, hedge funds, etc) must be reported annually on a Report of Foreign Bank and Financial Account or FBAR. Failure to file an FBAR can result in huge civil penalties and even prison in certain cases.
Most of the people we speak with simply don’t understand the foreign reporting laws. You may have to file an FBAR simply if you have signatory authority over a foreign account.
The IRS is running an amnesty program which allows participants to avoid prison and audit in return for a one time penalty. Those who have small accounts, special circumstances or can prove their failure to file was not willful may do better outside of amnesty or with other IRS programs. [For more information, click the tax tab in the upper right hand corner of our blog or use the search feature and search for OVDI, short for the Offshore Voluntary Disclosure Program.]
The IRS operates on a first contact policy meaning you can only seek amnesty or participate in one of their special programs if you contact them first. If they find you first, all bets are off. In other words, if you have money in a South African bank or have signatory authority over an account there, make sure you are in compliance with both the FBAR requirements and FATCA. If not in compliance – the IRS is looking back 8 years – contact an experienced offshore reporting expert such as a qualified tax attorney or CPA. Time is running out.
If you have questions or concerns about your offshore account, give us a call.Our tax lawyers were selected by the CPAmerica organization of accounting firms to be their preferred legal services provider for offshore tax reporting. We happily assist individuals, businesses, accountants and foreign banks with questions about FBARs and FATCA.
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.