For wealthy individuals across the globe, secret offshore accounts were once seemingly part of the way people protected their assets or provided convenient access to their wealth during overseas travel. Others remembering the lessons of WWII distributed their money and assets across the globe into accounts based and held in many nations “just in case.” However, regardless of a taxpayer’s reasons for sending money or assets to foreign accounts, in today’s world most U.S. taxpayers are required to make an annual disclosure of these accounts to the United States government.

Under both FBAR & FATCA, U.S. taxpayers are required to make disclosures stating the value and existence of foreign accounts. The United States has entered into international agreements with more than 110 nations to better enforce this obligation. The agreements with these nations permits the foreign governments to share financial account data with the United States government and vice-versa. Recently, the governments of Turkey & the United States announced that they would share information regarding offshore financial accounts. This means that U.S. taxpayers holding or controlling funds in Turkey are at greater risk than ever of having their undisclosed offshore accounts detected and facing severe penalties.

Turkey Agrees to a Model 1 Tax Information Sharing Agreement with the IRS

The agreement between Turkey and the United States takes the form of what is known as a Model 1 Intergovernmental Agreement to Improve Tax Compliance and to implement the Foreign Account Tax Compliance Act (FATCA). A Model 1 tax agreement requires foreign financial institutions to provide information about U.S. linked accounts to the foreign taxing authority. The foreign taxing authority then passes the information along to the IRS. The Model 1 agreement between the U.S. and Turkey is also reciprocal meaning that the U.S. government will also provide information to the Turkish government. In short, this information sharing agreement is highly likely to reveal the identity of Americans holding assets or accounts in Turkey.

What is FATCA and What Actions Does it Require?

FATCA has often been called “America’s Global Banking Law” because of its worldwide effects on the global banking system. FATCA provides the IRS and prosecutors from the Department of Justice (DOJ) with additional tools to identify and pursue taxpayers who are not complaint with FBAR or FATCA or who are suspected of engaging in offshore tax evasion. In general a U.S. taxpayer must disclose their foreign accounts if the aggregate balance of their foreign accounts or assets exceeds certain value thresholds. These values are based on the individual’s filing status and whether the taxpayer is living within the borders of the United States or abroad. Income and asset levels requiring reporting under FATCA are as follows:

  • Taxpayer is married, filing jointly, and living in the U.S. – If the value of assets is greater than $100,000 at the end of the tax year or greater than $150,000 at any point during the year a FATCA reporting obligation arises.
  • Taxpayer is married, filing jointly, and living outside of the U.S. – In this case if the value of the assets exceeds $400,000 at the end of the year or $600,000 at any time during the year then a FATCA disclosure obligation exists.
  • Taxpayer is a sole filer living in the U.S. – If the assets exceed $75,000 during the course of the year or $50,000 at year’s end a filing obligation exists.
  • Taxpayer is a sole filer living outside the U. – If the taxpayer’s assets are more than $200,000 at the close of the year or $300,000 at any point, a filing obligation exists.

Failure to comply with FATCA can result in significant penalties for taxpayers. However, these penalties can often be mitigated through a timely entry into Offshore Voluntary Disclosure Program (OVDP).

Taxpayers Must Also Comply With FBAR

Report of Foreign Bank and Financial Accounts (FBAR) is a filing obligation independent from FATCA disclosures. Typically, a U.S. taxpayer who owns or controls more than $10,000 in foreign accounts must make an FBAR disclosure. Taxpayers who fail to comply with FBAR obligations inadvertently or intentionally can face severe penalties. Even an inadvertent act of noncompliance can result in multiple fines of $10,000. If the noncompliance is perceived as voluntary or intentional, even harsher penalties can apply.

The additional information made available through FATCA and its international governmental agreements means that in more than 110 nations, your accounts will be disclosed to U.S. taxing authorities. Now, taxpayers can add Turkey to the list of nations where undisclosed, offshore accounts are extremely likely to be detected.

Rely on Our Offshore Tax Problem Experience

The dedicated and strategic tax professionals of the Tax Law Offices of David W. Klasing can help you identify potential pathways that can mitigate the consequences of tax noncompliance. To schedule a reduced-rate offshore tax consultation, call 800-681-1295 or contact us online today.