FATCA Measures Increasing
You may have read recently that the IRS is not moving as quickly as it could in implementing new FATCA (Foreign Account Tax Compliance Act) provisions which are geared toward increasing international tax compliance. The same isn’t true for the US Department of Treasury, however; it has been seeking new bilateral IGAs (Inter-Governmental Agreements) from more than 40 countries with which communication about income and financial accounts is currently limited. While you can read the full announcement by the Department of Treasury, we will highlight its intent in this article.
The Department of Treasury has already engaged in an active IGA with the United Kingdom and fully expects to have concluded active IGAs with more than 10 additional countries by the end of the year. The countries with which the Department of Treasury is close to finalizing AGIs include Canada, Denmark, Finland, France, Germany, Ireland, Isle of Man, Italy, Japan, Jersey, Mexico, Netherlands, Norway, Spain, and Switzerland.
An addition to the aforementioned agreements which are currently being finalized, dialogue for such agreements have been initiated with more than 25 countries, including: Argentina, Australia, Belgium, Bermuda, Brazil, British Virgin Islands, Cayman Islands, Chile, Cyprus, Czech Republic, Estonia, Gibraltar, Hungary, India, Israel, Korea, Lebanon, Liechtenstein, Luxembourg, Malaysia, Malta, New Zealand, Romania, Russia, Saint Maarten, Singapore, Seychelles, Slovak Republic, Slovenia, and South Africa. These are all countries with which the Department of Treasury hopes to have active IGAs. The more IGAs in place, the more difficult it will be to evade responsibility as an international taxpayer.
So why are so many countries cooperating with the United States to share information about income and financial accounts? The United States is full of immigrants from a wide variety of other countries; and these countries will not only agree to share information on US Citizens, they will also receive information about their own citizens and their income and financial accounts in the United States.
You can take the recently entered into IGA with the UK as an example. The IRS has agreed to furnish details about financial accounts belonging to UK Citizens, including the name and address on file, account numbers, and balances. In return, the United States will receive the same information about accounts being held in the UK by American Citizens and Green Card Holders. In this situation and many others, both countries are satisfied with the information they are receiving. The information shared between the 2 countries allows each country to make sure that all income and foreign financial account details are being accurately and completely reported to the proper designated agencies and that all taxes are being paid in full.
Surprisingly enough, the cost of sharing this information is not the burden of the United States or the governments of the countries with which IGAs are being established; the burden of cost will fall on the banks and financial institutions. As such, these institutions are attempting to pass the cost onto customers who are using USD in their bank and investment accounts. The fact that the burden of cost won’t fall to the government of the country with which an IGA is in place is one of the primary reasons why many countries seem to be in favor of the transparency being sought by the United States.
Another reason is that every country needs to generate as much revenue as possible; and by sharing information each country has a better shot of accounting for all tax dollars. The relief works both ways…On one hand, the United States has been a great place for foreign nationals to stash money without being discovered by their home country. On another hand, the United States has an estimated 6M American Citizens and Green Card Holders living and working overseas, but less than 500K US expat tax returns are filed every year. That means that over 5.5M Americans aren’t filing a US tax return or reporting foreign account balances, and the IRS is not collecting as much as it could if there international veil was lifted.
The measures being taken by the Department of Treasury is highly indicative of the fact that foreign financial accounts will be discovered, and those found to be in violation of FATCA reporting requirements will be charged the maximum penalty. If you have foreign financial accounts worth more than $10K (all accounts combined), it is in your best interest to take advantage of the 2012 OVDI (Offshore Voluntary Disclosure Initiative) for the minimum penalty of not having filed FBAR (Foreign Bank Accounts Report) on time. It is the hope of the Department of Treasury and the Obama Administration that increased measures for international information sharing will raise a significant amount of capital for the United States Government by exposing international tax evaders.
If you need more information about the 2012 Streamlined Procedurecurrently in effect or you have questions about your reporting responsibilities as a US Citizen or Green Card Holder, please talk to us.
|I.J. Zemelman, EA is the founder of Taxes for Expats
She may be reached at: +1-646-397-2887
Web site: www.taxesforexpats.com