For decades, U.S. tax authorities did little to enforce laws on offshore accounts. Â However, all of that changed in 2010 when Congress passed the Foreign Account Tax Compliance Act, known as FATCA. FATCA requires foreign financial institutions to report information about their U.S. account holders to the Internal Revenue Service.
Failing to comply with FATCA will bring stiff consequences. Foreign financial firms that do not cooperate could lose access to U.S. markets, and individual account holders who aren’t known to the IRS could face a 30 percent automatic withholding rate on payments such as interest and dividends.
The IRS currently has an Offshore Voluntary Disclosure Program to incentivize individuals who have not filed income tax returns or failed to comply with the Foreign Bank Account Report and FACTA. The program entails some stiff penalties which are best negotiated by an attorney or tax preparer.
The IRS casts a broad net for foreign assets. In the U.S., tens of thousands of taxpayers have admitted to having undeclared accounts and paid stiff penalties since 2010. Some have been criminally prosecuted, and some have gone to prison. If you have an offshore account or know a U.S. citizen who has not reported income, you should know about this law. Of course, the tax professionals at the Biggest Little Law Firm® in Kansas City are ready to help.
