If you are fortunate and successful enough to have offshore investments, assets, and accounts you have likely heard about the IRS, Department of Justice, and U.S. government’s attempts to crack-down on Americans and U.S. taxpayers who use offshore accounts to evade taxes. FBAR (Report of Foreign Bank and Financial Accounts) provides harsh penalties for taxpayers who fail to disclose offshore accounts and assets in their annual filing of FINCEN form 114. Likewise taxpayers who fail to satisfy their FATCA (Foreign Account and Tax Compliance Act) obligations can also face significant financial and tax consequences.
Unfortunately for taxpayers who have yet to address this tax duty, the window to correct problems by disclosing voluntarily is rapidly closing. Information sharing agreements adoption more than 100 nations to implement FATCA means that the risk of detection of undisclosed accounts is higher than ever before.
More Than 100 Nations have Signed Model 1 or Model 2 FATCA Information Sharing Agreements
More than 100 nations have signed an intergovernmental agreement (IGA) permitting the exchange of tax information between the United States and a foreign government. IGAs are drafted as either a Model I IGA or as a Model II IGA. Under the Model I framework, a foreign financial institution is obligated to provide information regarding U.S. linked accounts and account-holders directly to the nation’s taxing authority. The foreign taxing authority then turns that information over to the U.S. government where it can be used by appropriate government agencies including the IRS and DOJ. Under a Model II agreement, the foreign taxing authority may provide information regarding U.S. linked accounts directly to the U.S. government. Countries where an IGA is in effect includes:
- Austria
- Australia
- Belarus
- Belgium
- Bermuda
- Brazil
- Canada
- China
- Colombia
- Czech Republic
- Denmark
- France
- Germany
- India
- Italy
- Mexico
- Moldova
- Japan
- Luxembourg
- Saudi Arabia
- Spain
- Switzerland
- Turkey
- United Arab Emirates (UAE)
- United Kingdom
While these descriptions set forth the broad outlines of IGAs, it does not cover every pertinent detail for investor-taxpayers with accounts in the jurisdiction. Individuals with concerns should consult with a tax professional who can explain the IGA, what it permits, what it does not, and any unique jurisdiction-specific provisions that may affect one’s interests.
IRS Announces the Successful Start to Reciprocal, Automatic Exchange of Tax Information
In a recent press release, the IRS announced that it has successfully carried out financial information sharing procedures with certain foreign tax authorities. This exchange came prior to a key September 30th deadline regarding the progress of the program. The IRS’ access to new foreign tax information provides the agency with a wealth of information to ensure that taxpayer filings and disclosures are both accurate and comprehensive.
While the IRS will only implement reciprocal exchange of tax data with jurisdictions that meet certain requirements – data security, privacy, and technical standards to name a few – in the jurisdictions where the exchange takes place the capabilities of federal agents and prosecutors will be greatly expanded. According to IRS Commissioner John Koskinen “This groundbreaking effort has fundamentally altered our relationship with tax authorities around the world, giving us all a much stronger hand in fighting illegal tax avoidance and leveling the playing field.”
FBAR & FATCA Compliance Risk Is Greater Than Ever
The successful and timely implementation of automatic reciprocal information sharing marks the addition of another weapon in the arsenal of IRS agents and prosecutors from the DOJ. Taxpayers who have failed to make timely and comprehensive offshore account disclosures under FBAR or FATCA are significantly more likely to be identified. Furthermore, the failure to declare these offshore accounts can result in additional tax complications due to unpaid taxes and the potential imposition of a civil fraud penalty. Furthermore, in the case of a willful FBAR violation, penalties often exceed the original account balance.
If you hold or control offshore accounts and have yet to handle your annual disclosure obligation, you face an increasingly dire risk. While Offshore Voluntary Disclosure Program (OVDP) and Streamlined Disclosure can permit a taxpayer to resolve their past noncompliance at a significant discount in comparison to normal penalties, the taxpayer will be ineligible if he or she comes under investigation or if the disclosure ceases to be voluntary.
Rely on an Experienced Tax Attorney for FBAR & FATCA Concerns
If you have concerns regarding FATCA, FBAR, or offshore accounts you hold the Hoffman Tax Law Offices can help. To schedule a private, no-cost initial legal consultation call 800-897-3915 or contact us online today.