The government of Pakistan is one step closer to inking a deal with the United States Treasury to enforce FATCA, the Foreign Account Tax Compliance Act. Passed by Congress in 2010, FATCA aims to curb offshore tax evasion. The law has been widely criticized worldwide yet most countries are expected to join and the G20 group of developed nations is already discussing a global version nicknamed GATCA.
U.S. taxpayers worldwide are required to report foreign financial accounts. That means Americans with offshore accounts, dual nationals, green card holders and expats living abroad must annually disclose bank, brokerage and even some insurance products if located outside the U.S. Reporting is handled on a Report of Foreign Bank and Financial Accounts, FBAR for short.
Failure to file an FBAR can be a felony and usually involves huge civil penalties. The IRS believes there are millions of unreported accounts worldwide. Beginning July 1st, FATCA will require foreign financial institutions to perform due diligence on their account base. Those accounts with ties to the United States must be reported to the IRS.
Banks that don’t cooperate with the new law can expect penalties and difficulty doing business with U.S. banks and individuals. Many countries are working out treaties called “intergovernmental agreements” with the IRS to streamline reporting functions.
Last week, the State Bank of Pakistan, the Pakistani Federal Board of Revenue and Securities and Exchange Commission of Pakistan had a meeting with stakeholders to discuss how to implement FATCA. This is the second meeting this month. Pakistan already has an existing tax treaty with the United States that dates back to 1959. The government is expected to sign a new FATCA agreement this spring.
The agreement is expected to have a retroactive look back through 2013 meaning it is too late for those with accounts in Pakistan to simply close their accounts or transfer money to another offshore location in the hopes of avoiding detection.
As noted above, having accounts in Pakistan or anywhere else in the world is not illegal if the accounts are properly reported. Complying with the IRS offshore reporting rules is easy. If you have one or more years of unreported accounts, however, consider hiring an experienced FBAR lawyer as the penalties for noncompliance are huge – up to the greater of $100,000 or 50% of the historical high balance of each unreported account.
Mahany & Ertl – America’s FBAR Lawyers