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Last week, Donald J. Trump was elected to serve as the 45th President of the United States. U.S. citizens and spectators worldwide have long speculated about what the landscape of the law would look like under a Trump presidency. One of the areas of tax law that wasn’t specifically discussed by Donald Trump (or his campaign) was how the federal government will treat expats and those who live domestically but have access to foreign bank accounts.
The requirement to disclose foreign banking activity is not recent. The Bank Secrecy Act, passed in 1970, requires Americans to disclose details of any foreign bank accounts if (1) the American owned or had signature authority over the account and (2) the account had a high-balance of $10,000 or more at any point in the reporting year. Although Americans have been legally obligated to abide by the provisions of the Bank Secrecy Act, proving that an American has a foreign bank account in an overseas nation had been historically difficult due to the unwillingness of foreign nations or the financial institutions within them to release information to the U.S.
The Obama administration ramped up the nation’s Foreign Bank Account Reporting (FBAR) efforts and in 2010, pushed the Foreign Account Tax Compliance Act (FATCA) legislation through Congress. Simply put, FATCA requires foreign financial institutions to disseminate banking records of American customers to the U.S. government. Banks who fail to comply with the provisions of FATCA face a 30 percent withholding on any outbound payment from the U.S. to that particular bank.
Realizing that a 30 percent withholding tax on any payment that came through the U.S. would be a fiscal catastrophe, foreign nations and the banks within them lined up to comply with the reporting provisions of FATCA. Most nations have entered into Intergovernmental Agreements (IGAs) with the U.S., some of which provide a mutual information sharing provision, allowing both nations to pass tax and financial information back and forth. Other nations with less than optimal diplomatic relations with the United States allowed their banks to comply with FATCA directly by establishing a method of transmitting American bank account information with the U.S.
President-Elect Trump’s Proposed Tax Policies
Donald Trump didn’t address his proposed policies with regard to foreign bank account reporting while campaigning, but his overall tax strategy and the consensus of the GOP may provide some insight on the future of FBAR and FATCA.
Donald Trump’s tax strategy exhibits a common theme of simplicity and lower marginal tax rates. Unlike some of his GOP primary opponents, Donald Trump has shied away from a flat tax and has appeared to be focused on simplifying the existing tax code by closing loopholes and lowering tax rates for individuals and corporations. In the days following Donald Trump’s win, he met with President Obama to begin the presidential transition process. After an initial meeting of the 44th and soon-to-be 45th President, Donald Trump said that he is amicable to leaving certain laws (or portions thereof) enacted during the Obama administration in place.
Conservative Leaders Aren’t Fans of FATCA
Donald Trump aside, some top leaders in the Republican party have expressed their extreme displeasure for FATCA. In fact, presidential hopeful Rand Paul sued the federal government over the legality of FATCA and the foreign bank account reporting regime implemented by the Financial Crimes Enforcement Network (FCEN). Paul’s legal argument was Constitutional in nature as he argued that the IRS requiring banks to turn over information about U.S. taxpayers without having to articulate even the lowest level of suspicion is in violation of an American’s right to privacy under the Bill of Rights.
Rand Paul is only one of several conservative leaders to poke holes in the legality and practicality of FATCA. Many have argued that even if FATCA were Constitutional, it is financially burdensome. Many experts believe that the implementation and maintenance costs of FATCA are far more than the revenue that will be collected through its enforcement.
Although it is unclear if Donald Trump would sign off on the repeal of FATCA (or even the Bank Secrecy Act), the House of Representatives and the Senate are GOP controlled. Thus, if the Republican Party can agree on the future of FATCA (and tax policy as a whole, for that matter), there is nothing to stop a complete overhaul. That being said, news of Donald Trump opening up to leaving certain Obama Administration laws in place should be encouragement for those with foreign bank accounts that haven’t yet been disclosed to the U.S. government to consult with a tax attorney as soon as possible.
Contact an Experienced Tax Attorney Today
An American who willfully fails to disclose the existence of their foreign bank account can look forward to a federal prison sentence of up to three years for each tax year that a foreign bank account went unreported. Additionally, penalties may be levied up to 50 percent of the high-balance of the foreign bank account. The negative consequences of being caught with an undeclared foreign bank account can be devastating.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have extensive experience in assisting taxpayers in their efforts to come into compliance with FBAR laws. The federal government has established the Offshore Voluntary Disclosure Program (OVDP), which can provide a way out for many taxpayers who have an undeclared foreign bank account. Only an experienced tax attorney can hear your story and develop a sound legal plan of action. Don’t lose sleep over a hidden foreign bank account. Contact the Tax Law Offices of David W. Klasing today for a reduced-rate consultation.
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