Foreign Account Tax Compliance Act and Taxes
- January 2nd, 2015
- Comments Off on Foreign Account Tax Compliance Act and Taxes
If you are a United States taxpayer with bank accounts or assets abroad you need to know about the Foreign Account Tax Compliance Act to avoid getting in trouble with the IRS. The Foreign Account Tax Compliance Act was enacted in 2010 and is one of the most important developments in the United States efforts to combat tax evasion by U.S. persons holding investments in offshore accounts.
What is the Foreign Account Tax Compliance Act?
This new law takes effect starting January 1, 2014, and it makes it much more likely that American expats living abroad will have their holdings discovered and reported to the IRS by the same foreign banks that were formerly sheltering their assets.
The Foreign Account Tax Compliance Act basically deputizes foreign banks to do the enforcement and detection work of U.S. taxpayers hiding assets in offshore accounts. Penalties for failure to comply results in severe fines, even jail time.
But how does the IRS accomplish this? Well, the IRS first presents the Foreign Account Tax Compliance Act to the countries. Currently most European and South American countries have agreed to comply with the new law, and more are ratified every month. Under the Foreign Account Tax Compliance Act, foreign banks are required to report a list of all clients that are U.S. citizens to the IRS. Foreign banks identify U.S. citizens by requiring them to fill out a W-9 form, identifying U.S. expats for tax purposes. Failure to fill out a W-9 form with your foreign bank will often result in the bank freezing your accounts.
Not complying with the Foreign Account Tax Compliance Act
If you are a U.S. citizen, not complying with your tax or FBAR duty it could be considered a felony, in addition to being subject to civil litigation by the IRS if:
- You never filed a U.S. tax return or,
- The FBAR form or,
- The bank requests you to sign a W-9 form
Civil penalties for willfully failing to file an FBAR form, can be as high as 1 year in jail and the greater of $100,000 or 50% of the total balance of the foreign account, per violation.
Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
If you have any assets or accounts in foreign banks ask a tax professional if you are meeting all compliance. The tax professionals at JRH & Associates can help make sure everything is taken care of, give us a call at (516) 794-5752!