Investors Beware: IRS Continues to Crack Down on Foreign Accounts
New FATCA program requires foreign account holders to provide additional information to IRS.
August 04, 2012 /24-7PressRelease/ -- With government coffers suffering in a sputtering economy, the U.S. government continues its fight to collect more of the taxes owed. Estimates suggest that the Internal Revenue Service loses as much as $385 billion to tax evasion each year.
One of the main fronts where the IRS is waging war is in the fight to collect taxes owed on deposits held in foreign accounts. Unfortunately, such attempts can subject honest taxpaying citizens who hold foreign accounts to serious penalties. For example, many taxpayers may not realize they must report a foreign account they received at the death of an elderly relative who resided abroad.
The government started its attack by implementing a new reporting requirement for foreign accounts called the Report of Foreign Bank and Financial Accounts or FBAR. Taxpayers who have an interest in foreign accounts with assets totaling more than $10,000 in a year must report the account or face potentially harsh penalties.
More recently, the IRS waged a second front in the battle under legislation called the Foreign Account Tax Compliance Act, or FATCA.
Details of FATCA
FATCA also seeks to increase tax compliance. The law requires taxpayers with foreign financial assets exceeding $50,000 to report information about those assets on their annual tax return. Failure to report can result in a penalty of $10,000 and up to $50,000 if not reported before the IRS issues a notification.
In addition to requiring individuals to report, the program also requires foreign financial institutions (FFIs) to provide information about accounts held at their institutions by U.S. persons. Participating institutions will be obligated to pay the IRS 30 percent of any U.S. profits made from selling securities, such as a sale of stock shares.
Although the attempt to reduce tax evasion has promise, even the Government Accountability Office (GAO) has expressed concerns with the new enforcement program. In a recent report, the GAO chastised the IRS for lacking a comprehensive risk assessment to aid in forecasting any potential future problems with implementation of the program.
Experts project that it will take another five years before all the provisions of the 2010 Act are fully active. The IRS deputy commissioner for service and enforcement, Steven T. Miller, noted that the "FATCA is in the beginning phases of a six-year implementation project, which began in late 2010 and will continue through 2017."
Although the program will not be fully active until 2017, those with foreign accounts have been required to report these accounts since 2010. Navigating the intricacies of this new, evolving and complicated program makes holding foreign accounts all the more difficult. Those who have offshore investments are wise to discuss whether they need to report their overseas financial holdings with an experienced offshore tax attorney to avoid possible penalties.
Article provided by Law Offices of Jeffrey S. Freeman
Visit us at www.freemantaxlaw.com
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