FATCA Implications for Taxpayers in California and Elsewhere
On July 1, 2014, the Foreign Account Tax Compliance Act (FATCA) went into effect. FATCA was enacted to combat tax evasion and imposes a 30 percent tax withholding on foreign deposits made by United States taxpayers who hold an ownership interest in an offshore account with a banking institution that does not submit information to the Internal Revenue Service (IRS). In addition, U.S. citizens and permanent residents who fail to disclose their offshore assets under the new law are subject to a steeper nondisclosure penalty under the Offshore Voluntary Disclosure Program (OVDP). Currently, the OVDP levies a 27.5 percent tax penalty on the highest account balance of each offshore financial asset that an individual willfully fails to disclose on his or her U.S. federal income tax return. As part of the latest modifications to the OVDP, U.S. citizens who choose not to disclose assets maintained with a foreign financial institution that is publicly identified as being under investigation or cooperating with a U.S. investigation are now subject to a penalty of one-half of the account’s highest value.
The terms of FATCA compel foreign banks to disclose information about financial assets owned by Americans totaling more than $50,000 in value. In addition, financial institutions that fail to comply with the law face a threat of being excluded from the nation’s markets. FATCA closely followed an IRS settlement with at least two Swiss banking institutions over their alleged role in assisting U.S taxpayers with hiding assets overseas. Interestingly, more than 80 nations, including both Russia and China, have agreed to comply with the terms of FATCA. This is especially remarkable given that the U.S. is one of the few Western countries that opts to tax citizens on income regardless of where it was earned.
According to the law, overseas financial institutions are required to disclose the name, address, balance, account number, taxpayer identification number, and other information about offshore assets that are held by U.S taxpayers directly to the IRS. In addition, American taxpayers are still required to comply with the reporting requirements of the Reports of Foreign Bank and Financial Accounts (FBAR). The FBAR requires U.S. citizens and permanent residents to disclose any foreign financial accounts totaling at least $10,000 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 overseas account. Finally, green card holders and dual nationals do not escape FATCA. In fact, some tax experts reportedly believe any attempt to evade the law’s requirements through the use of a second passport or address may result in higher, willful tax penalties.
If you need advice regarding how to comply with international tax laws, attorney William Hartsock may be able to help. Mr. Hartsock is a certified tax law specialist with more than 30 years of experience assisting clients in Southern California with successfully navigating international tax matters. To speak with an experienced and committed San Diego tax lawyer about your situation, please call William Hartsock today at (858) 481-4844 or contact him through the firm’s website.
10 Facts About FATCA, America’s Manifest Destiny Law Changing Banking Worldwide, by Robert W. Wood, Forbes
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