When many taxpayers in the United States think about potential tax havens to stash away their money, there are generally a few countries that come to mind: Switzerland, the Cayman Islands, or even Luxembourg. But the United States doesn’t want to leave any stone unturned in its search for U.S. residents that have undeclared accounts overseas. Last month, the U.S. and Barbados officially entered into an Intergovernmental agreement that aims to create a level of transparency between the IRS and financial institutions in the eastern Caribbean. This development echoes a familiar warning to any taxpayers that have accounts that remain undisclosed to the IRS: come forward now by filing an FBAR, or face the consequences.
Barbados Agrees to Share Account Information with U.S.
The Barbados government announced on November 18th that a Model 1 Intergovernmental Agreement (IGA) had been officially adopted by both the United States and Barbados. The deal was effectuated by Donville Inniss, the Barbados Minister of Industry, International Business, Commerce and Small Business Development, and by the U.S. ambassador to Barbados, Larry Palmer at the U.S. embassy.
Barbados is not a stranger to dealing with the U.S. Each year, American companies export over $1.3 billion of products to the Caribbean nation. Furthermore, President Obama has made it a point during his term to reach out to nations like Barbados in order to promote trade between the nations.
The IGA between the nations is a “Model 1” agreement. This type of IGA is structured in such a way that creates a domestic responsibility for financial institutions located in Barbados to provide information about their accountholders, who are also U.S. residents for income tax purposes, to the Inland Revenue Department of Barbados. Once that information is collected, it will be digitally transmitted to the Internal Revenue Service, here in the U.S. Foreign banks inside Barbados that do not comply will be subject to domestic penalties under the domestic laws of Barbados.
Over the past year, there has been a dramatic increase in the amount of countries entering into IGA’s with the U.S. This is primarily due to the Foreign Account Tax Compliance Act (FATCA) implementation date of July 1st. Banking institutions within countries without an IGA are subject to a 30 percent withholding on all outbound transactions coming from the United States if they refuse to turn over American account information.
What Are Your Obligations as a Taxpayer?
Domestic law in the United States requires U.S. residents to disclose the existence of financial accounts that are located outside of the taxing jurisdiction of the United States. The reason for this requirement is simple: the IRS wants to keep track of what income producing assets that you control around the world as U.S. residents are taxed on their worldwide income. Failure to make the required Foreign Bank Account Reporting can result in hefty fines and penalties that can easily exceed the balance of the hidden bank account as well as criminal charges that could land you in a federal prison. As you can see, the U.S. government is taking this issue very seriously.
There is a glimmer of hope for those U.S. residents that still haven’t come forward and self-reported their foreign account. The IRS has set up the Offshore Voluntary Disclosure Program. If a taxpayer comes forward and discloses their hidden account and pays any taxes owed and a reduced penalty, the IRS and Department of Justice will not file a criminal action against you. This program is a product of administrative grace and is not guaranteed stick around. In fact, the program has various conditions that should be included in a discussion between the taxpayer and an experienced tax attorney. One disqualifying situation involves the IRS or DOJ investigating you for any tax-related reason. This includes receiving your information from a foreign financial institution through an IGA or otherwise.
Time is Running Out
If you are a taxpayer that has an account that hasn’t been disclosed, you are in danger of not only losing your financial freedom, but your physical freedom as well. The IRS will not hesitate to open a criminal investigation with regard to your foreign account. Once that happens, it could be a very short amount of time before criminal charges are filed by the DOJ for willfully failing to disclose your foreign accounts. Do what is best for yourself and your family and consult an experienced a tax attorney to assess your options. Your freedom is at stake.
The tax and accounting professionals at the Tax Law Offices of David W. Klasing have years of experience in assisting taxpayers with undisclosed foreign accounts come clean and sleep better at night. We understand what you have at stake and will work diligently to ensure that you receive the most favorable outcome possible. Contact the Tax Law Offices of David W. Klasing at 800-681-1295 today for a reduced-rate consultation.
