President Obama in 2010, signed P.L. 111-147, the Hiring Incentives to Restore Employment Act. The purpose of the law is in its eponymous title, but the Internal Revenue Service got into the act with the Foreign Account Tax Compliance Act (FATCA) provisions.
FATCA is an attempt by the IRS to “improve reporting compliance” — translation: “widen the net” — to tax United States citizens who stash assets abroad.
The new FATCA reporting rules are broad and will impact U.S. corporations and high-income individuals with offshore financial holdings. The IRS issued its final regulations in January 2013 and put its Treasury Department “tax ambassadors” to work.
The result was a series of intergovernmental agreements with more than 50 other countries. FATCA, however, was not solely the work of the U.S. government in an attempt to prop up the dollar as the world’s premier currency. According to Steven J. Mopsick’s IRS Report Card:
“FATCA negotiations and cooperation with friendly trading partners were in the works long before it became law in the United States in March of 2010 … [T]he creation of a virtual international banking and financial institution data base has been the goal of US trading partners for probably two decades.”
The Timeframe
FATCA reporting covers assets held in taxable years starting after March 18, 2010. This, for most taxpayers, will be for the 2011 tax return filed during the 2012 tax-filing season.
The IRS Reporting “Net”
• U.S. taxpayers who have more than $50,000 in foreign financial assets need to report information about their aggregate holdings on IRS Form 8938.
• Foreign financial institutions (FFIs) in countries included in the international agreements will report directly to the IRS the financial holdings of U.S. citizens.
Under FATCA, FFIs are required to:
• practice due diligence to identify their U.S. account holders
• send a yearly report to the IRS on account holders who are U.S. citizens or are foreign entities with substantial U.S. stockholders/owners
Participating FFIs also must withhold and pay the IRS 30 percent of proceeds from:
• nonparticipating FFIs
• account holders who conceal their nationality
• foreign account holders hiding the identities of their owners and stockholders
Penalties For Not Complying
Here is a quote from the IRS web article “Summary of Key FATCA Provisions”:
“Failure to report foreign financial assets on Form 8938 will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). Further, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional substantial understatement penalty of 40 percent.”
The Good News Is…
The IRS currently doesn’t have the resources to make FATCA a runaway train pursuing those who can run but not hide. The bad news is that they have all the time in the world to activate the steamroller in what seems to be an emerging major tax impact on Americans both home and abroad.
In accordance with Circular 230 Disclosure
As a former public defender, Michael has defended the poor, the forgotten, and the damned against a gov. that has seemingly unlimited resources to investigate and prosecute crimes. He has spent the last six years cutting his teeth on some of the most serious felony cases, obtaining favorable results for his clients. He knows what it’s like to go toe to toe with the government. In an adversarial environment that is akin to trench warfare, Michael has developed a reputation as a fearless litigator.
Michael graduated from the Thomas M. Cooley Law School. He then earned his LLM in International Tax. Michael’s unique background in tax law puts him into an elite category of criminal defense attorneys who specialize in criminal tax defense. His extensive trial experience and solid grounding in all major areas of taxation make him uniquely qualified to handle any white-collar case.
3 comments on “FAT(CA) – No One Is Getting “FAT” Except The IRS”
Not mentioned is the reporting threshold for non-resident US persons is $200K. Regardless of any threshold, however, is the fact that foreign banks are closing accounts of Americans living abroad. That’s only one of the vast number of unintended consequences of this poorly thought out law.
Suzanne:
Excellent observation. Thanks for weighing in.
– Mike
A citizen of (say) Canada who lives, works, and pays taxes in Canada, but who happens to be claimed by the U.S. as a U.S. citizen does not “stash assets abroad.” They bank across the street from where they live.
When is the U.S. going to adopt residence based taxation like a civilized country? And Americans can’t understand why the U.S. is hated around the world as it imposes its robbery of other countries through extra-territorial laws like FATCA.
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