Banks all over the world are sending letters to clients explaining the new reporting requirements under FATCA. Short for the Foreign Account Tax Compliance Act, FATCA requires banks located outside the United States to review their accounts and tell the IRS about any accounts with ties to the United States. That includes signatories with a U.S. passport or address, an account address in the United States or even an accountant here.
Not all banks are sending letters, of course, but that doesn’t mean that they are not also doing the same things.
Offshore banks may hate FATCA but they hate the prospect of facing criminal prosecution in the United States even more. To date the Justice Department and IRS have targeted mostly Swiss banks making some folks think their money is safe from disclosure if “hidden” in another country. Unfortunately, while Swiss banks get the media attention, the government has been actively pursing banks in other countries including Israel, India and the Caribbean. Banks know this and are scurrying to protect themselves.
Recently we learned that Rand Merchant Bank – also called RMB or RMB Bank – has been sending letters to account holders. The banks want customers to understand why the banks must comply with FATCA and when. (You can view the RMB FATCA page here.) The South African banking giant also has its own reasons for sending FATCA letters, however.
According to the bank, RMB suggests it will complete the FATCA review of its accounts by December 31st 2014 and will complete the review of subsidiaries and affiliates by June 2015.
Some banks have been prosecuted for helping Americans hide offshore accounts. Opening a bank or precious metals account outside the U.S. is legal if the account is properly reported. That means filing a Report of Foreign Bank and Financial Accounts (FBAR) if the total of all offshore accounts exceeds $10,000.
Banks that have helped people open foreign accounts are not at risk but banks that have helped Americans hide those accounts or use nominee accounts to conceal the true ownership of the accounts are at great risk. Of course, we are not saying that Rand Merchant Bank did so. We have seen, however, many banks trying to get customers to voluntarily come into compliance so as to avoid even the suspicion of wrongdoing.
So what does this mean if you have an unreported account at RMB or any other offshore bank? Plenty!
FBAR penalties are up to the greater of $100,000 or 50% of the highest account balance per year, per account. That is not a typo. An account worth $100,000 could generate a penalty of $100,000 in just one year. It’s important to develop a compliance strategy before the bank discloses your name. Do nothing and you will soon face a huge tax bill from the IRS.
The IRS has amnesty initiatives that may help. Presently the IRS is offering the 2014 Offshore Voluntary Disclosure Program or OVDP. Before you race to send in missing FBARs or decide that amnesty is right for you, however, speak with an experienced FBAR lawyer or CPA first. The penalties for making a mistake are simply to great.
Need more information? The tax lawyers at Mahany & Ertl concentrate in foreign reporting, FATCA and FBAR compliance. For a no fee, confidential consultation, contact attorney Bethany Canfield at or by telephone at (414) 223-0464.
Mahany & Ertl – America’s Tax Lawyers