Texans gearing up for April’s tax return filing deadline should be aware of recent modifications made to laws regarding taxes on foreign assets. In 2010, U.S. Congress passed the Foreign Account Tax Compliance Act (FATCA), which changes how the IRS verifies tax return data. IRS agents will now have increased access to overseas financial records.
Although the federal government has taxed earnings on foreign assets for quite a while, the way they verify the reported earnings has been changed. Under the provisions of FATCA foreign banks and financial firms will be required to turn over financial documents for their American clients if the IRS requests them. The IRS is ramping up their efforts to catch people falsifying their foreign earnings reports.
In response to the IRS’s new found power, some with a considerable sum of foreign assets might renounce their American citizenship so they are not subject to the new rules. Individuals considering this move may hold concerns about the scope of federal power as it relates to interactions with foreign financial institutions. This is a fairly dramatic course of action, so it is unclear how many people will actually give up their U.S. citizenship.
Filing federal tax returns is rarely an exciting experience, especially considering the added complexity and stress that can come with changes in tax laws. However, anyone agonizing over their returns and how new foreign asset regulations may affect them should know they do not have to go through the process on their own. People in this position might consider consulting a capable legal professional to become aware of their rights and feel more comfortable with the possible outcomes of filing their tax return.
Source: The Washington Post, “IRS: Disclose those foreign assets,” Al Kamen, Jan. 19, 2012