Foreign Account Tax Compliance Act
If you have a foreign bank account, you may have recently received correspondence from your foreign financial institution informing you of their intent to turn over your information, as a U.S. taxpayer, to the IRS. These notices are being sent out in response to foreign governments signing Foreign Account Tax Compliance Act (FATCA) agreements with the United States.
In the United States, FATCA was signed into effect by President Barack Obama on March 18, 2010 as part of the Hiring Incentive to Restore Employment (HIRE) Act. It was drafted in response to the loopholes uncovered from examination of the previous Qualified Intermediary Program (QI). Under the previous QI program, foreign financial institutions were required to report little, if any, information to the IRS. In particular, foreign financial institutions could evade reporting accounting information of U.S.-owned accounts if the U.S. owned accounts contained no assets with U.S. source income.
The applicable provisions of FATCA have been subsequently codified in the Internal Revenue Code. The result has been that several of the loopholes that existed under the previous QI program have been closed. Of greatest significance is the requirement that foreign financial institutions report the following information on accounts owned by U.S. taxpayers: 1) The name, address and tax identification number of each account holder that is a specified United States person, and, in the case of any account holder that is a United States owned entity, the name, address, and tax identification number of each substantial United States entity owner; 2) The account number; 3) The account balance or value; and 4) The gross receipts and gross withdrawals or payments from the account.
This reporting requirement closes the largest loophole, which excluded foreign financial institutions from reporting requirements on foreign accounts of United States individuals with foreign source income. Foreign financial institutions must now disclose account information on all U.S. owned foreign accounts regardless of whether the income is from U.S. or foreign sources. The closure of this and other loopholes provides the IRS with the necessary tools to identify and prosecute U.S. taxpayers with undisclosed assets in foreign financial institutions.
What this means for U.S. taxpayers is that foreign financial institutions will begin reporting information to the IRS similar to the way domestic financial institutions do. So, if a foreign financial institution reports to the U.S. government that a U.S. taxpayer holds an account at their bank and that U.S. taxpayer has not disclosed their ownership of or income from that foreign account to the IRS, either a criminal investigation or civil audit will likely be initiated.
As of late 2013, the U.S. had executed FATCA agreements with France, Germany, Italy, Spain, the United Kingdom, Switzerland, Japan, Denmark, Mexico, Ireland, Norway, Costa Rica, the Cayman Islands, Jersey, the Isle of Man, Guernsey, the Netherlands, Malta and Bermuda. As this list grows, the number of foreign financial institutions required to report U.S. taxpayer information to the U.S. government also increases, narrowing the opportunity for U.S. taxpayers with foreign accounts to come forward on their own.
National FATCA Compliance Attorney
The experienced tax professionals of Brown, PC are available to assist and counsel you on keeping your offshore accounts compliant. We have successfully navigated the Offshore Voluntary Disclosure Program for many clients throughout the existence of the program; contact Brown, PC at 817-870-0025 or toll free at 888-870-0025 to discuss your case options and to schedule a highly confidential consultation. Our firm represents clients throughout the United States, from New York to Seattle, as well as Americans who work overseas.