There are millions of Americans living overseas but only a fraction file United States tax returns and even fewer file Reports of Foreign Bank and Financial Accounts (“FBARs” for short). Back in the 1970’s, Congress passed the Bank Secrecy Act, which requires U.S. taxpayers with aggregate offshore financial assets in excess of $10,000 to report those assets annually to the IRS. Until 2008, the law was largely unenforced.Beginning with the criminal investigation of Swiss bank UBS in 2008, the IRS and Justice Department has put a great deal of resources into enforcing the foreign reporting laws. Several big changes to these rules are coming which puts all those not in compliance at tremendous risk.
The newest and biggest risk to financial privacy is FATCA. Beginning next year, FATCA – the Foreign Account Tax Compliance Act – requires “foreign financial institutions” to review their accounts and report those with ties to the United States. Foreign banks, hedge funds, some precious metal companies and even some life insurance companies are all subject to the new law. Under the threat of huge financial penalties, Uncle Sam is making foreign bankers become the eyes and ears of the IRS.
FATCA isn’t the only risk, however. Back in 1986 Congress authorized the IRS and State Department to share information. Although the provision laid dormant for years, the IRS says it is readying new regulations; regulations that will require the State Department to disclose to the IRS the social security number and foreign residency information of those persons obtaining or renewing passports.
The law, codified at 26 U.S.C. section 6039E, applies to both new passports and renewals. More ominously, it sets the stage for even more disclosures. As passed by Congress, the law allows the IRS to require the State Department to require applicants to provide “such other information as the Secretary [IRS] may prescribe.”
You can refuse to supply your SSN to the State Department but that sets you up for a $500 fine and more importantly, an IRS audit or investigation. Refusing to provide a social security number won’t get you far and will only raise giant red flags.
Many taxpayers simply didn’t know of their foreign reporting requirements. Some folks just received bad accounting advice. Still others have been sitting on the fence wondering if they will get caught. In this age of big data, the odds are not in their favor.
So what should you do? While there is much talk of renouncing citizenship, few have done so (although the numbers are trending up dramatically). More importantly, the United States won’t allow you to renounce citizenship if you are currently delinquent in your taxes.
We advise that you bring your foreign reporting into compliance NOW!
The IRS is offering an Offshore Voluntary Disclosure Program, although it carries a large price tag – a one time 27.5% penalty for most participants. Not a great deal unless your previous noncompliance was willful. For most participants, amnesty comes with a get-out-of-jail free card and no audit.
If you are like most Americans and simply didn’t know or understand the foreign reporting rules, there are much better alternatives. Sometimes all penalties can be waived.
Not sure what to do?
Well considering that:
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The expected exchange of information between the IRS and State Department could be a real nightmare for many Americans.
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The government has become quite adept at finding people with unreported income and offshore accounts.
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The solution isn’t repatriating your money back to the United States; and
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It’s probably already to late anyway since the new FATCA foreign reporting requirements have banks performing a retroactive review on many accounts.
The best option is to comply while you still have options!
Want to Make an Offshore Voluntary Disclosure?
Contact the Tax Lawyers
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Source :
Read more at: Tax Times blog
