Bill That Would Have Repealed FATCA Reporting Requirements Fails in the U.S. Senate
A United States Senate bill that would have repealed the Foreign Account Tax Compliance Act (“FATCA”) recently failed to reach a vote. The 2010 law was reportedly created in an effort to combat tax evasion by requiring foreign banks to disclose financial accounts with assets totaling at least $50,000 that are held by U.S. taxpayers. Overseas financial institutions that refuse to comply with FATCA’s requirements face exclusion from the nation’s financial marketplace.
The FATCA went into effect on July 1, 2014. Since then, both foreign countries and offshore financial institutions have agreed to comply with the law’s reporting requirements. This is remarkable because the U.S. is one of the few Western countries that chooses to tax citizens on income regardless of where it was earned. Financial institutions that fail to report American taxpayer banking information must instead withhold a tax of 30 percent of all foreign deposits made by U.S. taxpayers. A list of participating nations is available through the U.S. Treasury.
As a result of the FATCA, many foreign banking institutions have apparently started refusing to maintain accounts for Americans who reside overseas. In addition, the costs associated with enforcing the law are purportedly much larger than the revenues that are derived from it. Still, much of the FATCA burden is borne by overseas financial institutions. In Canada, an ongoing legal challenge now seeks to bar the nation’s banks from handing over private banking information to the U.S. government.
In addition to the FATCA, American taxpayers who hold an ownership interest in or signatory authority over an overseas financial account with a balance of at least $10,000 must file a Report of Foreign Bank and Financial Accounts (“FBAR”) each year. A taxpayer who fails to timely file the FBAR may be charged the greater of $10,000 or 50 percent of the highest value of the undisclosed foreign account. Criminal penalties may also be incurred.
In general, U.S. citizens and permanent residents who fail to disclose their overseas assets under the FATCA are subject to a steeper nondisclosure penalty under the Offshore Voluntary Disclosure Program (“OVDP”). The OVDP currently levies a 27.5 percent penalty on the highest account balance of each foreign financial asset that an American taxpayer willfully fails to disclose on his or her U.S. federal income tax return. The latest modifications to the OVDP compel U.S. citizens who choose not to disclose offshore banking assets with a foreign financial institution that is publicly identified as being under investigation or cooperating with a U.S. investigation to pay a penalty of one-half of the account’s highest value.
If you have questions about your international tax obligations, you are advised to contact San Diego tax attorney William Hartsock through his website. Mr. Hartsock has more than 30 years of experience advising clients across Southern California about international and other tax law matters. To discuss your situation with a veteran tax advocate, give Mr. Hartsock a call at (858) 481-4844 today.
FATCA Repeal Efforts Just Failed, But Is It A Good Law?, by Robert W. Wood, Forbes
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