An article in the Australian Financial Review claims that the IRS is ramping up its activities in Australia. According to the article, the IRS is “scrutinizing the tax affairs of United States citizens living in Australia with renewed intensity, as the worldwide battle to shore up dwindling government tax reserves heats up.” The source of their story is Australian accountants.
We aren’t surprised by the headline. In fact, the IRS is searching worldwide for unreported income and unreported foreign accounts. Obama’s FATCA legislation (Foreign Account Tax Compliance Act), passed in 2010 and delayed several times, is now in full effect. That means foreign financial institutions must report accounts belonging to U.S. taxpayers. Even if an American only has signature authority over an account, it still must be reported to the IRS.
The new FATCA reporting structure is catching many American expats, dual nationals and green card holders by surprise. Simply because a U.S. citizen holds a second citizenship or resides overseas doesn’t change the reporting requirements.
Since the early 1970’s, U.S. taxpayers have been required to report foreign accounts but compliance was spotty. FATCA now makes foreign banks, brokerage firms and other financial institutions the eyes and ears of the IRS.
Penalties for not reporting foreign income are steep. The penalties for an unreported offshore account are even higher. The latter can involve prison and civil penalties of up to $100,000 or 50% of the highest account balance if the IRS deems the nonreporting to be “willful.” Even nonwillful violations can carry penalties of $10,000 per year.
Of particular concern to Americans living in Australia or Australians living in the United States are superannuation accounts. The Australian Taxation Office provides special tax treatment to Australian self-managed superannuation funds (SMSF) but the IRS does not. Under the Internal Revenue Code, income from SMSFs is taxable as ordinary income.
FATCA has certainly created a tremendous amount of confusion. If you have an account in a foreign country consider speaking with a tax lawyer that concentrates in foreign reporting. The penalties for noncompliance are simply too high to ignore.
Have an unreported foreign account or foreign income? Give us a call. Are services are confidential. protected by the attorney – client privilege, available worldwide and in many instances can be offered on a flat fee basis. Our initial consultations are free and without obligation. For more information, contact attorney Beth Canfield at or by telephone at (414) 223-0464.
MahanyLaw – America’s FATCA Lawyers