International Data Exchange Service is Now Active – Bad News for Taxpayers with Undeclared Accounts
We all know the feeling of having to schedule an undesirable trip to the dentist, doctor, or the DMV. In fact, most of us push off these unwelcomed events as long as possible. But alas, the day eventually arrives. For Americans with overseas accounts that have yet to be declared, that day is today. The IRS recently announced that their gateway protocol allowing foreign banking institutions to transmit American account information directly to the IRS is officially active and ready to be used. This news gives any American with a secret foreign bank account a very good reason to contact an experienced tax attorney. The difference could be between freedom and federal prison.
Brief History of FATCA and Intergovernmental Agreements
Over the past 10 years, the United States government has been working swiftly to try to shut down overseas tax shelters. The obvious scenario that comes to mind is a wealthy American that stashes their money away into a Swiss bank account, lets it accumulate hefty amounts of interest and when tax season comes around, that incomes goes unreported and the U.S. government is none-the-wiser. This type of behavior created a booming industry in Switzerland for many years until the IRS and Department of Justice put their proverbial “foot” down. The crackdown included the government levying huge fines and penalties against several Swiss banks and even filing or threatening to file criminal charges.
The United States passed the Foreign Account Tax Compliance Act (FATCA), legislation that requires foreign banks to hand over information about American accounts and their owners or face a 30% withholding of all funds transferred through the United States. The possibility of criminal charges didn’t sit well with foreign banking institutions or their home governments and thus, over 115 nations signed Intergovernmental Agreements (IGA’s) with the United States.
The popular IGA’s that stemmed out of the FATCA legislation are typically based on three different models promulgated by the treasury department. The Model 1A agreement is reciprocal, in that the foreign nation signatory agrees to provide account information for tax purposes to the IRS and the United States agrees to return the favor. The IB Model is non-reciprocal. Both the 1A and 1B models are government-to-government, meaning that the foreign nation will report the information directly to the IRS. The Model 2 agreement involves a financial institution reporting information directly to the United States. These agreements are particularly helpful to foreign banks residing in countries that are reluctant to enter into any agreements with the United States.
The New System is Up and Ready to Provide Incriminating Information
The technology that recently became active is called the International Data Exchange Service (IDES). This service will allow foreign banks to register and send information directly to the IRS. To protect U.S. taxpayer information, account data will be encrypted at the local and transmission levels. The system was scheduled to be in an open-testing phase last week and it appears that the IDES is ready to go.
For Americans with foreign bank accounts that were waiting until the absolute last minute to either disclose their foreign account or seek the assistance from a tax attorney: that day is today. The IRS is still accepting applicants into the Offshore Voluntary Disclosure Program, a program that allows taxpayers to pay reduced-penalties, fees, and back taxes in order to avoid the possibility of time in a federal prison. There is one catch: you are not eligible for the program if the IRS or Department of Justice has an open investigation or examination against you with regard to any tax matter. This means that as soon as incriminating information comes through the new IDES system and ends up on a IRS agent’s desk, you likely will be disqualified from the program that has helped many taxpayers stay physically and financially free.
Contact Us Today
The tax law and accounting professionals at the Tax Law Offices of David W. Klasing have several years of experience helping taxpayers stay both out of jail and financially healthy. The IRS and Department of Justice have seen taxpayers get away with overseas accounts for years and are now relentlessly pursuing taxpayers who come into their crosshairs. Don’t step into the ring with the IRS or DOJ without a zealous advocate in your corner. Contact the Tax Law Offices of David W. Klasing today online or by phone at (800) 681-1295 for a reduced-rate consultation.