Date: 01/31/13
Topic: Foreign Accounts
A legal fiction is a fact assumed or created by the courts, which is then used in order to apply a legal rule that is not designed to be used in that way. However, although useful to an attorney in defense of his or her clients, the same idiom can be dangerous if invoked by the client. There has been a growing trend of persons with dual citizenship believing that because a foreign account was opened under a foreign passport, they are protected from foreign institution’s reporting requirements under the Foreign Account Tax Compliance Act (FATCA). As sure as if the account had been opened under a U.S. passport, the IRS will find out.
The straight answer is that no matter how much of a valued customer you are, the bank’s first priority is to make money. In order to do so, the bank must have access to U.S. markets. Despite the state of the U.S. economy it is still the largest and strongest on the global stage. This means, the foreign financial institutions will agree to terms put forth under FATCA.
FATCA is aimed at combating offshore tax evasion principally at the institutional level by requiring foreign banks, hedge fuds, and other financial institutions to report U.S. taxpayer holdings or else face stiff penalties. A principal component of FATCA is due diligence. Banks and other foreign financial institutions must institute investigative measures to ensure they are well acquainted with individuals with whom they do business. Therefore, even though the account was opened with a foreign passport discovery is still a risk. Common items that will generally reveal a United States association include: 1) a U.S. address or phone number linked to the account; 2) certain biographical information i.e. place of birth; and 3) transactions that originate in the United States.
It has been well documented that the United Kingdom, Mexico, Denmark, Ireland, Switzerland, and Spain have signed model FATCA agreements and that the Service expects over 50 other countries to follow suit. In fact, priority targets include Central and South America, the Mideast and Far East-Panama, Ecuador, Argentina, Venezuela, Taiwan, South Korean, Thailand, Dubai, Malaysia, Singapore, Hong Kong, China, and India.
The bottom line is pretending you are safe is hardly a plan for security. Any link to the U.S. will be ferreted out under the new compliance regime and your account information will be discovered and disclosed. The only way to ensure security from federal prosecution and the possibility of incarceration is to enter the Voluntary Offshore Disclosure Program. If you have unreported foreign accounts and fear that the IRS may soon learn of your activities the Tax Law Offices of David W. Klasing can help you get back into compliance and avoid the impending wrath of the IRS and state taxing authorities. The first step is to determine how severe a problem you have.
It could be as simple as filing the missing FBARs and requesting penalty abatement for reasonable cause where all of the foreign income has been duly reported. Or as involved as filing 8 years of amended returns to report the foreign income, 8 years of FBARs and then guiding you through making a Voluntary Disclosure to the criminal investigations division of the IRS.
