U.S. tax authorities and foreign governments are on track to conclude dozens of agreements in coming months on the sharing of financial data about citizens giventhe July 1, 2014 deadline nearing for implementation of a sweeping U.S. anti-tax evasion law – the Foreign Account Tax Compliance Act (FATCA). If a foreign bank or financial institution falls to comply with FATCA, it could be frozen out of U.S. capital markets. Thus, foreign firms have a big incentive to comply with the law in reporting U.S. account holders.
Lately there have been many rumors about another delay for FATCA. . In fact, some foreign financial institutions as well as some governments say they need more time. The IRS has already delayed implementation twice and is currently set on a July 1st implementation date. We believe that the IRS will not allow a third extension and here’s why:
- Michael Danilack, IRS Deputy Commissioner, recently announced that FATCA’s July 1, 2014implementation date was not going to be postponed again. Mr. Danilack is the number two person at IRS and he reaffirmed to his listeners that the IRS will be ready for FATCA implementation on July 1st.
- Thereafter the top IRS boss, Commissioner John Koskinen, made it crystal clear saying “We’re not going to have any delays. We expect to issue the final package of rules shortly. We are working diligently to finalize all related guidance to ensure that financial institutions have time to effectively prepare and comply, and there is no consideration for a delay of FATCA implementation.”
With such strong words from the number one and two people in the IRS, it is clear the IRS is fully committed to the July 1st start date.
FATCA is hugely unpopular among foreign banks but Congress passed the law for a reason – many foreign banks were helping Americans evade taxes. While the law may be flawed, we doubt it will be repealed.
With or without FATCA, Americans, dual nationals, expats and green card holders remain obligated to report their offshore accounts. The penalties for failure to report required FBARs (Report of Foreign Bank and Financial Accounts) are tied to the Bank Secrecy Act which has been on the books since 1970. FATCA has no bearing on those penalties or the duty to file FBAR forms.Under current banking law – not FATCA – the penalties are up to the greater of $100,000 or 50% of the highest historical account balance. These are not hypothetical maximums; these are penalties routinely imposed by the IRS which they can charge without court action.
So what does this mean for taxpayers with undisclosed foreign accounts?
It means time is running out and we recommend quick action. With the fiscal challenges face by the U.S. government, the IRS and Justice Department are committedto uncover unreported foreign accounts and missing FBARswhich will be a lot easier once the foreign banks will start handing over data about American account holders.Although the IRS has an amnesty and expat reporting options available, those deals are off the table if the IRS finds your account first.
If you have never reported your foreign investments on your U.S. Tax Returns or even if you have already quietly disclosed, you should seriously consider participating in the IRS’s Offshore Voluntary Disclosure Initiative (OVDI) which allows taxpayers to come forward to avoid criminal prosecution and not have to bear the full amount of penalties normally imposed by IRS. Taxpayers who hire an experienced tax attorney in Offshore Account Voluntary Disclosures should result in avoiding any pitfalls and gaining the maximum benefits conferred by this program.
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