FATCA Act Will Allow Offshore Accounts to Take 30 Per Cent Out of Your Foreign Bank Account?

 

Foreign Account Tax Compliance Act (FATCA) and Form 8938

The following information is extremely important to tax payers who have offshore assets, accounts and dealings.  It is highly suggested that you read, and contact your Tax Attorney if this applies to you.  Congress is playing “big brother” and countries who do not play, may become “the capital” of offshore accounts Feels like money is shifting. ----

The Foreign Account Tax Compliance Act (FATCA) is an important development in U.S. efforts to improve tax compliance involving foreign financial assets and offshore accounts. Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS. This reporting will be made on Form 8938, which taxpayers attach to their federal income tax return, starting this tax filing season. In addition, FATCA will require foreign financial institutions to report directly to the IRS information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

To properly comply with these new reporting requirements, an FFI will have to enter into a special agreement with the IRS by June 30, 2013. Under this agreement a “participating” FFI will be obligated to:

(1)   undertake certain identification and due diligence procedures with respect to its accountholders;

(2) report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership; and

(3) withhold and pay over to the IRS 30-percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.

The above information can be found on the IRS web site at: http://www.irs.gov/businesses/corporations/article/0,,id=236667,00.html

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Important Note:  It is NOT illegal to have an offshore bank account or offshore assets, however, it IS illegal not to put this information on your annual tax return. 

Taxpayers who are legal often times are NOT trying to hide money from the IRS, they simply have placed the money in accounts where the IRS or no other agency, can touch!

To date, if the IRS sent a bank levy order to an offshore bank account, very little if anything would happen.  However, if that same levy is sent to an U.S. bank, the money would be taken out of your account and sent to the IRS.

Of course when the IRS knows that you have assets in an offshore account, we believe, they may be lest tolerant of your delay to pay your tax liability when requested to do so. 

This sort of information is above our pay grade.  Please contact your tax attorney to discuss how this will affect you.