April 15 has become synonymous with tax day in the United States. This year is a little different, because the Internal Revenue Service is celebrating Emancipation Day. Public employees in Washington D.C. get the day off or the closest day when the April 16th holiday falls on a weekend.
As we approach the upcoming U.S. tax filing deadline, we want to update readers on the Foreign Account Tax Compliance Act (FATCA). The IRS recently added three more countries to its list of those with automatic exchange relationships.
Growing country list
The three new countries are from quite a few regions. They are Azerbaijan, Jamaica and Slovak or Slovakia. They bring the total number of countries with these tax data exchange agreements to 37.
Most European countries make the list. Some of the most populous countries are Brazil, India, and South Africa. Other smaller ones include Liechtenstein, Guernsey, Malta, Gibraltar and Isle of Man.
How does the information exchange work?
A two-way flow of digital financial information has already begun between the U.S. and 34 countries. The foreign countries send data on U.S. taxpayer foreign accounts and receive information from the IRS on foreigners' U.S. accounts.
While the U.S. and foreign governments have shared information in the past, it has not been automatic and the scope was generally narrower. Financial firms now send information on U.S. taxpayer accounts to their government, which submits it to the IRS.
Information exchanged can include an individual's name and address along with tax identification number and account balance. The agreements require sharing all deposit interest income (aggregated interest over $10) and dividend income.
The digitalized information exchange came about as part of FACTA, an enforcement program that Congress passed in 2010. Outrage that foreign financial firms had advised U.S. taxpayers on ways to hide money resulted in broad financial information sharing requirements.
Failing to report offshore accounts comes with severe penalties. FATCA extended these from individuals to financial firms. If firms didn't comply, they risked losing 30 percent of payments on interest and dividends from U.S. sources. For some types of transactions - for example, stock trades - the Treasury will not start withholding 30 percent until 2019. It has already begun doing so on other types of payments.
Since 2010, thousands of U.S. taxpayers have entered the IRS-limited amnesty program. These programs are a way to avoid criminal charges and limit civil penalties. The IRS has recovered more than $7 billion related to offshore account compliance.
For those with more than $10,000 in undisclosed foreign accounts, now is the time to speak with a tax attorney. Simply failing to file a disclosure can expose you to substantial civil penalties. Learn whether a voluntary disclosure program may halp bring you back into compliance.