IRS Gets FAT off of FATCA

The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that requires US citizens living home or abroad to report all assets held in financial accounts outside of the United States.  It further requires foreign banks to report the holdings of all US citizens to the Internal Revenue Service. 

Congress passed FATCA in 2010 to make it harder for U.S. taxpayers to hide assets held in offshore accounts and shell corporations. Since 2010, FATCA has enabled the IRS to collect billions of dollars in taxes and fines on previously undeclared assets of US taxpayers.

Can I get penalized through FATCA?

Through FATCA, the US is successfully driving strict compliance from international banks.  By threatening foreign banks with a 30% tax and exclusion from U.S. markets, over 80 nations and 77,000 financial institutions have agreed to the new law including all the big boys like Switzerland, Russia and China. U.S. account holders who aren’t compliant have limited time to get to the IRS. The IRS recently changed its programs, making its Offshore Voluntary Disclosure Program (ODVP) a little harsher. Yet for those not willing to pay the 27.5% penalty—which rose to 50% August 4, 2014 for some banks—the new IRS’s Streamlined Program may be a good option if you can qualify.

Note that despite the new laws, FBAR filings are still required. FBARs (Foreign Bank Account Reporting) predate FATCA, but this isn’t the first time the IRS has asked for duplicate reporting. FATCA piles on to the reporting including Form 8938, but it doesn’t replace FBARs. FBAR’S have been in the law since 1970 but have taken on huge importance since 2009. U.S. citizens with foreign bank accounts greater than $10,000 must file an FBAR each year by June 30.

These forms are serious, and so are the criminal and civil penalties. Failure to file FBAR can mean fines up to $500,000 and prison up to ten years. Even a non-willful civil FBAR penalty can mean a $10,000 fine. Willful FBAR violations can draw the greater of $100,000 or 50% of the account for each violation–and each year is separate. These kinds of numbers add up fast.

If you are a high wage earner with international holdings, now is the time to become compliant.  Contact Christopher J. Byrne for expert advice and guidance for all international tax matters.  Or see our website at http://www.christopherbyrne.com