South Korea’s National Tax Service announced that Seoul and the IRS would soon begin exchanging data on offshore accounts. Under the 2010 FATCA law, foreign banks are required to review their accounts and report those with ties to the United States. Owning an account, have signature authority on the account or having a beneficial interest in the account all trigger reporting requirements.
In 2010, Congress passed FATCA (the Foreign Account Tax Compliance Act) in the hopes of combatting tax evasion. Although U.S. taxpayers have been required to report foreign accounts since 1970, compliance has been spotty. FATCA requires the banks to become the eyes and ears of the IRS.
Under an intergovernmental agreement signed by the United States and South Korea, the two nations will begin exchanging data in September. The agreement initially requires Korean banks to report accounts with balances more than $50,000 (US). Banks that refuse to cooperate will be subject to a steep U.S. withholding tax.
The mandatory reporting is required even for Americans living in Korea, Korean dual nationals and Korean citizens with a U.S. green card regardless of where they live.
A spokesperson for the Korean NTS said, “If we regularly exchange data on taxpayers’ bank accounts with the U.S., it will help the tax authorities crack down on attempts at offshore tax evasion. The move is in line with the government’s drive to bring the underground economy into the open for taxation.”
As noted above, U.S. taxpayers have long been required to report foreign accounts. Reporting is generally required on a Report of Foreign Bank and Financial Accounts (FBAR), Schedule B of one’s U.S. income tax return and on IRS form 8938 (FATCA form). The penalties for not reporting an offshore account can be huge.
With banks poised to begin exchanging information, taxpayers are running out of time to comply. The IRS has an amnesty and streamlined reporting options but those are not available if the IRS obtains the account information first.
For most taxpayers, coming into compliance isn’t difficult but can be time consuming and often involves some penalties. If you have an unreported bank or other financial account in South Korea, speak to an experienced tax lawyer immediately. Unfortunately, enrolled agents and accountants do not enjoy the same guarantee of confidentiality as lawyers. Should a dispute later arise, the IRS can subpoena your own accountant to testify against you!
Need more information about FBARs, FATCA or the IRS’ amnesty options? Give us a call. Initial consultations are without charge. Most offshore reporting services can be handled for a reasonable flat fee. For more information, contact attorney Beth Canfield at or by telephone at (414) 223-0464. All inquiries kept confidential.
Mahany & Ertl America’s Tax Lawyers