The United States and Australia have signed an intergovernmental agreement to exchange tax information. Although the US has long had an information exchange treaty with Australia, the new agreement requires Australian banks and other financial institutions to become the eyes and ears of the IRS. As part of the new FATCA legislation, US Treasury officials have been negotiating treaties around the world with foreign governments.
FATCA – short for the Foreign Account Tax Compliance Act – was passed by Congress in 2010. The goal of the new law is to cut down on tax evasion using offshore accounts, increase financial transparency and increase revenues. The IRS believe that millions of Americans have accounts outside the United States. Owning or being s signatory on a foreign account is completely legal if the account is properly reported.
Federal law requires taxpayers with more than $10,000 in offshore accounts to annually report those accounts. Reporting is done on one’s tax return and on a Report of Foreign Bank and Financial Accounts (“FBAR”). As part of a crackdown on unreported foreign accounts, Congress has made the willful failure to file an FBAR a felony. The civil penalties were increased as well. Sometimes the penalties greatly exceed the value of the account.
FATCA is designed to improve compliance by requiring foreign financial institutions to examine their accounts and report those accounts that have ties to the United States or a U.S. taxpayer. Australia becomes the newest country to enter into an agreement to enforce FATCA.
Under the terms of the agreement with Australia, banks will gather the required information and report to the Australian Taxation Office instead of directly to the IRS. The Australian authorities will then forward the information to the IRS.
Under the terms of the new agreement, special rules are being developed for superannuation accounts. These are special retirement savings accounts much like a Registered Retirement Savings Plan (RRSP) in Canada, IRA in the United States or KiwiSaver in New Zealand.
Taxpayers with unreported brokerage, annuity or bank accounts in Australia should seriously consider coming into compliance before the Australians begin turning over account information to the IRS. Beginning July 1st, foreign banks will begin reviewing their accounts. Although FATCA doesn’t require the turnover of that information until next year, the IRS has proven very adept at getting the information through other means.
Once the IRS has your information through FATCA or directly from a foreign bank, expect an audit and hefty penalties. The IRS generally has been much more lenient to taxpayers who come forward voluntarily. There is an amnesty program called the Offshore Voluntary Disclosure Program but that may not be the best fit for everyone and better deals are often available.
If you have an unreported account in Australia, we recommend discussing your options with a CPA or tax lawyer experienced with FBARs and FATCA. The risks of getting caught and the associated huge civil penalties make a “wait and see” approach very unwise.
Need more information? Contact us and let an experienced IRS tax lawyer review your situation. Our initial consultations are free and confidential. Contact attorney Bethany Canfield at or by telephone at (414) 223-0464.