Since the passage of the Foreign Account Tax Compliance Act in 2010, the United States has been relying on the State Department to negotiate agreements with other nations that will make it easier for bank account information to be transferred to the United States. As you will read below, the US has represented that their information sharing Intergovernmental Agreements can be “reciprocal”, but in many cases, the State Department’s willingness to hand over US bank information is extremely limited. Nonetheless, foreign governments are urging their banks to comply with FATCA, which means that US residents with undeclared foreign bank accounts may find themselves in hot water, very soon.
The Foreign Bank Account Reporting (FBAR) law requires that US residents disclose the existence of any foreign bank account with a high-balance of $10,000 or more at any point in the tax year. FBAR laws have been around for quite a while but have recently been strictly enforced in an attempt to thwart the plans of taxpayers to hide copious amounts of money in overseas accounts. Willful failure to disclose the existence of a foreign bank account can lead to penalties of up to 50 percent of the high-balance of the account for each tax year that the account went unreported. Furthermore, willful violators face lengthy federal prison sentences.
Many Americans believe that overseas bank accounts only exist in Switzerland and although there have been very high profile cases that have come about involving Swiss banks, Americans have been stashing their money away in countries all around the world. In recognizing that, Congress passed FATCA six years ago in an attempt to force foreign governments and banks to hand over information relating to accounts owned by US residents. Under the FATCA legislation, foreign banks are required to give specific identifying foreign account information to the United States. Banks that fail to do so will be subject to a 30 percent withholding tax on any payments made from US payors.
In complying with FATCA, foreign banks either transmit American account information directly to the US or through their local taxing authority. These arrangements are typically effectuated with an Intergovernmental Agreement (IGA) between the US and foreign jurisdiction. In some IGA’s, the information sharing is “reciprocal”, meaning that the US will also share information about bank accounts that the foreign country’s citizens own or have control over. But foreign jurisdictions, such as Argentina, have complained that the US is reluctant to give up critical account information, even in reciprocal agreements.
According to news reports, Argentinian officials who have been attempting to negotiate an IGA with the US have complained that the amount of reciprocal bank account information is extremely limited. The reports indicate that the reason for this is that the US is only willing to share extensive bank account information with those countries that they have entered into a double-taxation treaty with and thus, have a prior relationship. While Argentina continues to negotiate with the US on an IGA, they have urged their banks to comply with FATCA.
As Argentina has demonstrated, even if foreign countries have not yet come to an official agreement with the US, most are advising banks within their borders to comply with FATCA. This means that a steady flow of foreign bank account information is making its way to the US at a fairly rapid pace. If you have a foreign bank account that has not yet been disclosed, chances are that your name will end up coming through the International Data Exchange Service (IDES) and into the hands of the US government.
The IRS has established a program whereby US residents can cooperate with the government and receive a much more lenient punishment for having an undisclosed foreign bank account than they would receive if they were prosecuted and convicted. The Offshore Voluntary Disclosure Program (OVDP) allows Americans to avoid a criminal prosecution in exchange for a complete disclosure of their foreign bank account. The OVDP has helped thousands of Americans avoid the harsh reality of waiting for your account to be discovered by the US. There are a few things to keep in mind with regard to the OVDP. First, time is of the essence. The IRS can end the program at any time. Second, if you are already being investigated by the government for any tax matter, you may not be qualified to enter into the OVDP.
If you have a foreign bank account that you have not disclosed to the US government, it is truly only a matter of time until it is discovered and you have to face the music. Consulting with an experienced tax attorney who has helped US residents participate in the OVDP and take other steps to avoid the negative repercussions of a federal prosecution for FBAR violations is in your best interest. You can learn from my past post why you should talk to a tax attorney regarding your tax affairs to avoid legal issues in the future.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience representing taxpayers in various situations, including those with undeclared foreign bank accounts and those who are being investigated for a tax crime(criminal tax defense). Our team of zealous advocates is ready to fight for your physical and financial freedom. Don’t lose sleep over tax troubles. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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