The Foreign Account Tax Compliance Act (FATCA), a federal tax law passed in 2010, requires U.S. taxpayers and foreign banks to disclose certain offshore accounts and assets to the IRS. This requirement stems from the United States’ unique (and somewhat controversial) system of citizenship-based taxation (CBT), practiced only by the U.S. and Eritrea (Africa), under which citizens are subject to federal income tax and other U.S. tax regulations regardless of where in the world they actually live. FATCA affects U.S. citizens, resident aliens, U.S. businesses, U.S. trusts, and in some cases, even nonresidents, meaning anyone from expats to retirees living abroad to dual citizens to frequent business travelers can be affected. Some critics have argued that certain taxpayers, such as expats and American citizens abroad, receive unfair treatment under FATCA, compliance with which often proves highly burdensome for members of these groups. Ultimately, regardless of whether you live abroad or within the United States, it is critical to disclose your reportable foreign accounts and investments to the IRS if you wish to avoid costly penalties – or tax fraud charges.
It is also incredibly important to report all sources of taxable income on a worldwide basis if you are subject to U.S. income tax reporting. Unreported foreign bank, brokerage, business and other financial accounts, omitted foreign information reporting, coupled with unreported offshore income is a proven formula for a successful federal criminal prosecution if found to be willful.
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
How FATCA Requirements Can Create Dangers for Expats, “Accidental Americans,” and U.S. Citizens Abroad
In November, Bloomberg published an opinion piece (which was later covered by Yucatán Expat Life) decrying the hardships that expats can face under FATCA, including “rules that are often unclear,” “draconian” penalties for violations, and – perhaps unsurprisingly – “nuisance and needless anxiety” as a consequence.
Unfortunately for expats in Mexico (or any other jurisdiction), these descriptions are not exaggerated. While FATCA requirements for individuals are, arguably, clearer than some of the IRS’ other guidelines, those affected still face exceedingly complex regulations, which makes it difficult to achieve compliance even when the taxpayer attempts to obey the rules. As for the “draconian” penalties, it is also true that noncompliant taxpayers face extremely high fines, even in scenarios where a violation was accidental. For instance, there is a maximum $10,000 civil penalty per each non-willful FATCA violation, such as a failure to file Form 8938 (Statement of Specified Foreign Financial Assets). If the noncompliance persists, the taxpayer may also face “an additional penalty of up to $50,000 for continued failure to file after receiving IRS notification.” Though uncommon, there have even been cases in which taxpayers were criminally prosecuted for willful FATCA violations. Using offshore banks and financial institutions to hide income from the IRS can also lead to tax evasion charges, tax obstruction charges, or related criminal charges.
For some taxpayers living abroad, such as “accidental Americans” – taxpayers who, though technically citizens, have spent most of their lives outside the U.S. (such as citizens who moved as young children) – the burden of FATCA compliance seems especially disproportionate. The IRS pays close attention to expats and citizens overseas – and with foreign financial institutions (FFIs), like individual taxpayers, facing massive penalties for FATCA noncompliance, foreign banks need little encouragement to share information about their American account holders with the IRS.
IRS Foreign Account Tax Compliance Attorneys for International Taxpayers
Whether you are a U.S. expat living abroad, a California resident with an offshore bank account, a business owner with foreign partnership interests, or a dual citizen facing tax issues caused by “accidental American” status, it is in your best interests to seek skilled professional tax help. At the Tax Law Office of David W. Klasing, we are foreign account tax compliance attorneys with more than 20 years of experience helping international taxpayers and businesses navigate U.S. tax laws successfully. At times, the issues discussed in this blog have equated to 80% of our book of business.
Whether you are facing a foreign account tax audit, civil penalties related to FATCA violations, or even an IRS criminal investigation, our international tax attorneys are here to provide assistance. Contact us online to arrange a reduced-rate tax consultation or call the Tax Law Office of David W. Klasing at (800) 681-1295.
In addition to our staffed main offices in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento.
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Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here.
