FATCA Implementation May Affect San Diego Taxpayers With Overseas Financial Assets
Under current United States tax law, citizens and permanent residents are compelled to pay income taxes on their earnings regardless of where the individual lives or works. Many taxpayers who live or store money overseas are unaware of their duty to pay taxes on income earned in a foreign nation. Others reportedly seek to evade paying their required share of income taxes. Either way, a U.S. citizen or permanent resident who fails to comply with federal income tax laws can face stringent penalties.
On July 1st, the Foreign Account Tax Compliance Act (FATCA) will go into effect across the U.S. The new law requires overseas banking institutions to report financial data related to the offshore accounts of American taxpayers directly to the Internal Revenue Service (IRS). If a financial institution refuses to comply with the law’s requirements, it must withhold 30 percent of any deposits made by a U.S. taxpayer. In addition, FATCA imposes new reporting requirements on taxpayers with offshore account balances that exceed $50,000. Interestingly, the terms of the law will provide the IRS with information about all of the offshore financial assets held by a U.S. taxpayer as well as any income the individual derived in a foreign country.
U.S. citizens are currently required to report any ownership or signatory interest in a foreign financial account that exceeds an aggregate of $10,000 using the Report of Foreign Bank and Financial Accounts (FBAR) form. Still, many taxpayers fail to do so. According to the IRS, FATCA was created to make it more difficult for American taxpayers to hide money and other assets offshore. With the implementation of FATCA and recent changes to the Offshore Voluntary Disclosure Program (OVDP), the days of overseas account secrecy for American taxpayers are quickly dwindling. Many historically important offshore banking centers like Luxembourg and Switzerland have reportedly agreed to hand over U.S. customer data to the IRS beginning on July 1. In the past, foreign financial institutions such as Credit Suisse endured multi-billion dollar fines for assisting American taxpayers with hiding assets from the IRS.
Critics of FATCA argue that the new law imposes an unfair income tax burden on expatriates. Others claim the strict reporting requirements will prompt more Americans to relinquish their citizenship. Although a record number of U.S. citizens and permanent residents reportedly relinquished their status in 2013, that number did not reach 3,000.
Keeping up with new and changing federal income and international tax laws can be confusing. Since the consequences for non-compliance are usually quite significant, you should discuss your international tax questions with a knowledgeable attorney. William Hartsock is dedicated to advising clients in Southern California about international income tax law matters. To discuss your situation with an experienced tax lawyer, call Mr. Hartsock at (858) 481-4844 today or contact him online through his website.
Additional Resources:
US offshore tax evaders beware: FATCA starts July 1, by Jeremy Tordjman, news.yahoo.com
FATCA — The Global Reach of the IRS, by Terry Savage, Huffington Post