Offshore Account Gamechange: FATCA Reporting Requirements
To use a basketball analogy, the IRS is increasingly putting on the full-court press when it comes to collecting money from Americans with offshore accounts.
This article will discuss how the IRS may use the Foreign Tax Compliance Act (FATCA) to turn up the pressure on Americans with foreign bank accounts to disclose more information and pay more taxes.
OVDI and FATCA
Since 2009, the agency has already offered two rounds of an Offshore Voluntary Disclosure Initiative (OVDI) aimed at increasing compliance with the reporting requirements on foreign accounts. The most basic of those requirements is the Report of Foreign Bank and Financial Accounts (FBAR).
Although the latest OVDI program has brought in over $5 billion in taxes, the IRS is determined to tighten up its defense against suspected tax evasion even more. The agency’s new strategy focuses on using FATCA to enlist foreign financial institutions as allies in its attempts to extract more tax revenue from foreign accounts.
FATCA does not take effect until next January and many parts of the law will likely not be fully in place until 2017. For U.S. taxpayers with foreign accounts worth more than $50,000, however, the coming implementation of the law is already a serious matter.
Indeed, the law is of concern to foreign financial entities as well. This is because the IRS could try to impose stiff penalties if the foreign banks and other financial institutions do not comply with the new enforcement role FATCA imposes on them. Under the new law, offshore entities must release confidential information about their clients and make it available to the IRS.
As a result of these coming requirements, many offshore banks are now requiring U.S. account holders to sign away their bank secrecy rights.
Foreign Governments and Tax Evasion
It isn’t only foreign banks that the IRS is trying to enlist in its offshore collection efforts. The U.S. Treasury Department is also working on making agreements with foreign governments. The goal of the agreements is to make it easier for the IRS to exchange information with its tax collection counterparts in other countries.
The Treasury says it has such agreements in place with five European countries. The five are Germany, France, the United Kingdom, Italy and Spain. More reciprocal agreements are expected.
Government attempts to crack down on tax evasion are nothing new. Yet the new reporting requirements under FATCA are sweepingly comprehensive. They are a game-changer in which not only the IRS, but also foreign banks and governments, are seeking to tighten the collection pressure.