If you enjoy following politics, you are already aware of the major tax reform initiatives underway in Congress. The House and Senate, having recently passed different versions of a sweeping tax reform bill, are now have reconciled their respective proposals. According to various media reports, legislators have passed a final version, which is heading to President Donald Trump’s desk for a signature, before Christmas 2017, or more likely, early 2018. As the final details are ironed out over the course of the next several weeks, it remains to be seen whether either chamber of Congress will push to tackle the Foreign Account Tax Compliance Act (FATCA), an aggressively enforced law which many taxpayers, tax attorneys, and political figures argue is burdensome and invasive in its present form.
Much of the media coverage on the GOP’s tax reform plan has, understandably, focused on well-known tax issues that affect all or most taxpayers. Much, for instance, has been written about proposed changes to the standard deduction, the mortgage interest deduction, and the Child Tax Credit, to provide just a few examples. However, while domestic issues have received most of the limelight, there’s another dimension of the U.S. Tax Code that arguably deserves reworking: it’s unusual, and some would say excessive, treatment of foreign income, assets, and financial accounts held by non-resident citizens.
Other than the small African nation of Eritrea, the United States is the only country in the world whose tax laws require non-residents to disclose assets and income. For some, the issue here is one of fairness: why should non-residents be taxed on global income when they do not benefit from U.S. government services? For others, it is an issue of privacy and independence: is the Internal Revenue Service (IRS) overstepping its bounds, and engaging in unreasonable searches and seizures in violation of the Fourth Amendment to the U.S. Constitution, by allowing banking information to be seized and searched without a warrant? For others still, the concern is economic: do onerous regulations like FATCA cost taxpayers more than they need to, and if so, how can such costs be reduced?
Whatever one’s reason for opposing FATCA – be it ethics, economics, or a combination of both – one could make the argument that now, as sweeping tax reform efforts are underway, is the perfect time for Congress to repeal or at least revise the Foreign Account Tax Compliance Act. Indeed, such a repeal was explicitly “called for” in the GOP platform of 2016, which included the following statement (italics our emphasis):
“The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”
As a political party whose signature goals include smaller government and simplified regulation, the repeal of FATCA aligns well with core Republican beliefs (and those of many taxpayers, regardless of political affiliation). However, only time will tell whether the House and Senate will reach a viable consensus on existing FATCA regulations.
For now, FATCA still requires foreign banks to report information about their U.S. account holders’ assets to the IRS, or else face financial penalties. There are also some FATCA requirements for individual taxpayers, namely the requirement to report foreign income of or exceeding $50,000 to the IRS using Form 8938 (Statement of Specified Foreign Financial Assets). Failure to comply with FATCA, even inadvertently, can result in serious penalties. Failure to file Form 8938 can result a penalty of up to $10,000, with additional penalties tacked on for continued noncompliance after the initial failure. Thus, it is crucial for taxpayers to ensure strict adherence to FATCA while the legislation remains in place.
Whether you need assistance filing Form 8938, need help understanding other foreign income reporting requirements such as FBAR, are interested in participating in the Offshore Voluntary Disclosure Program (OVDP), or simply have questions about how you, your family, or your business might be affected by FATCA and related reporting requirements, we encourage you to contact the Tax Law Office of David W. Klasing for zealous, client-oriented, results-driven representation. Our international tax attorneys have more than 20 years of experience aiding residents and non-residents with foreign income disclosures. To schedule a reduced-rate consultation concerning FATCA, FBAR requirements, or related income reporting requirements, use the contact link above, or simply call (800) 681-1295 today.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices in San Bernardino, Santa Barbara, Panorama City, and Oxnard! You can find information on all of our offices here.
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Foreign income and information non-compliance
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