Ukraine and United States Governments Reach IGA to Begin FATCA Enforcement

Since the global financial crisis that shook financial markets across the globe, the U.S. Congress has been particularly focused on addressing the tax gap. The tax gap is the difference that exists between the projected tax revenues for a given year versus the actual tax receipts. Many in Congress seem to attribute the tax gap to wealthy Americans who make use of a complex array of foreign accounts and trusts to conceal their wealth and income from the IRS and state tax agencies.

In response to these perceived practices, the U.S. government has engaged in an array of informational reporting non-compliance detection and enforcement efforts. One of these compliance efforts is the Foreign Account Tax Compliance Act (FATCA). FATCA requires U.S. taxpayers living at home or abroad to report covered foreign assets when they exceed certain limits.

What Is required of a Taxpayer Under FATCA?

Under FATCA, a taxpayer can have an obligation to file an informational tax return when he or she holds offshore accounts or assets. The exact level of assets a taxpayer can hold or control will vary based on their marital and residency status. A good general rule is that married taxpayers filing jointly can hold or control the most foreign assets before they are required to report under FATCA. In contrast, sole filers who live in the United States are able to hold the least amount of foreign assets before a reporting obligation is triggered. If you have an obligation to file FATCA, it can only be satisfied by filing Form 8938, Statement of Specified Foreign Financial Assets. It should be filed at the same time as you file your taxes.

However, some taxpayers wonder what enforcement mechanism ensures that they file and report their foreign obligations. Essentially, international governmental treaties that compel foreign financial instructions to report and take certain actions is the main enforcement impetus behind FATCA.

FATCA Framework Is Being Implemented in Ukraine

Ukraine’s government reached an agreement to implement FATCA in 2014. The agreement permitted foreign financial institutions in Ukraine to claim “participating FFI” status. By doing so and complying with certain obligations, banks and other Ukrainian financial institutions can avoid the significant withholding penalty that can be imposed.

Under the agreement, FFIs are generally required to turn over certain information relating to U.S. based account holders. The FFIs must generally turn over account information, the associated account holder and an array of other information to satisfy its FATCA duties.

The U.S. government and IRS can then utilize the information reported by FFIs to assess whether taxpayers have fully and accurately reported all income and assets. If you have filed or already considered FATCA, it is also wise to consider whether your foreign assets will also create a duty to disclose under FBAR or due to owning a controlled foreign corporation (CFC).

What Penalties can a Taxpayer Face for FATCA Non-Compliance?

The individual’s intent is not a consideration when it comes to FATCA violations. That is, a taxpayer can still be convicted of a failure to file Form 8938 to satisfy the FBAR obligation even when the noncompliance was 100% accidental or unintentional. The penalty for a failure to file FATCA starts at $10,000. Continued noncompliance with FATCA can lead to additional fines and penalties including an additional penalty of up to $50,000 for continued failure to file after IRS notification. Taxpayers who

have failed to file FATCA and other informational reporting requirements often have additional instances of noncompliance.

How Can I fix FATCA Problems?

If you are concerned about FATCA problems in general or have simply put off your compliance efforts due to the relatively slow implementation in Ukraine, you do still have options. Taxpayers who believe that that they made errors or other mistakes in handling this obligation in past tax years may qualify for the Streamlined Voluntary Disclosure Program or the standard Offshore Voluntary Disclosure Program.

Taxpayers who qualify for this program can significantly mitigate the consequences of their non-compliance. In particular, taxpayers living abroad who can qualify for foreign streamlined procedures can completely avoid the offshore penalty. Taxpayers who live within the United States can reduce the penalty they face, but will have to pay some level of an offshore penalty. In any case, proceeding through voluntary compliance procedures will typically produce a more favorable outcome compared to if the IRS detects and prosecutes the noncompliance.

Fix FATCA Problems with Tax Lawyers based in Los Angeles and Irvine

If you have accounts in the Ukraine and are considering addressing your FATCA obligations or errors, the tax lawyers and tax professionals from the Tax law Offices of David W. Klasing can help. To schedule a rate confidential consultation, call 800-681-1295 today or contact our Los Angeles or Irvine tax law offices online.