U.S. Taxpayers Urged to Use the OVDP to Report Undisclosed Foreign Assets Before Banks Divulge Account Information Under FATCA
According to a recent survey, nearly three-fourths of the 7.6 million United States citizens who live overseas are now considering handing in their passports. Many Americans who are thinking about renouncing their citizenship are reportedly concerned about complying with the 2010 Foreign Account Tax Compliance Act (“FATCA”). The law went into effect on July 1, 2014 and requires foreign banks to disclose financial information about U.S. citizens who maintain assets valued at more than $50,000 overseas. Banking institutions that fail to comply with FATCA face possible exclusion from U.S. markets.
FATCA was created after a 2009 U.S. settlement with two large Swiss financial institutions accused of helping American taxpayers hide money and other assets overseas. The law compels foreign banks to provide the Internal Revenue Service with the name, address, account number, taxpayer identification number, balance, and other information about overseas assets that are held by a U.S taxpayer. If a foreign financial institution refuses to supply the requested information, it must withhold a tax of 30 percent of any deposits made by an American citizen or other taxpayer. Currently, more than 80 countries and at least 77,000 foreign banks and other financial institutions have agreed to comply with the terms of FATCA, even though the U.S. is one of the few Western nations that taxes its citizens and permanent residents on income earned in another nation.
In addition to the terms of FATCA, American taxpayers who hold an ownership interest in an offshore bank account with a balance of at least $10,000 at any time during the tax year are required to file an annual Report of Foreign Bank and Financial Accounts (“FBAR”). A U.S. citizen or green card holder who fails to timely file the FBAR may be penalized the greater of $10,000 or 50 percent of the highest value of the undisclosed foreign account. Dual citizens and individuals who have a second passport may not bypass the requirements imposed by the law.
If you have an undisclosed offshore bank account, you may be entitled to come into compliance with the U.S. tax code through the Offshore Voluntary Disclosure Program (“OVDP”). The IRS program allows U.S. citizens and permanent residents who previously failed to report their foreign financial assets to voluntarily comply with the nation’s federal income tax laws in exchange for a reduced penalty. Since 2009, the IRS has recovered at least $6.5 billion in unpaid taxes from approximately 45,000 overseas financial account holders through the program. Unfortunately, time is of the essence, since individuals who fail to disclose financial assets maintained with an offshore banking institution that submits information to the IRS under FATCA are subject to a steeper nondisclosure penalty under the OVDP.
To discuss your international income tax obligations with a certified tax law specialist, please contact attorney William Hartsock today. Mr. Hartsock is an international tax lawyer with more than 30 years of experience assisting clients in San Diego with their income and other tax issues. To speak with a knowledgeable tax attorney about your situation, call Mr. Hartsock at (858) 481-4844 or contact him through his website.
5.5 Million Americans Eye Giving Up U.S. Citizenship, Survey Reveals, by Robert W. Wood, Forbes
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