New Law Takes Effect Allowing IRS to Examine Bank Records of Americans Trying to Evade Taxes

Sunday, July 06, 2014

A law taking effect this month forces foreign financial institutions to let the Internal Revenue Service (IRS) examine its records to ensure that U.S. citizens abroad are not hiding taxable income from the federal government.


The Foreign Account Tax Compliance Act (FATCA) imposes a 30% tax on cross-border payments from the United States to banks and other financial institutions that don’t provide information about U.S. account holders to the IRS. In practice, not much money is expected to be collected; more than 77,000 financial institutions have registered with the IRS and will avoid paying the tax, according to Bloomberg. In many cases agreements have been negotiated between the United States and other countries, including tax havens such as the British Virgin Islands and the Cayman Islands, which fulfill the disclosure requirements of the law but keep financial institutions from violating their countries’ banking laws.


Before FATCA went into effect, the IRS depended on citizens to self-report their foreign income. “If you had an account outside of the U.S., you were pretty much on your honor to disclose that information,” Denise Hintzke, the global tax leader for Deloitte Tax LLP’s FATCA practice, told Bloomberg.


Some Americans have renounced their citizenship rather than have their information reported to the IRS. Others are trying to move their money where the IRS can’t find it. “FATCA has been a pretty difficult blow for our U.S. expatriates,” said Martin Karges, senior director in international tax at BDO USA LLP in New York. “They may be shifting money to noncompliant jurisdictions.”


The IRS says it will enforce FATCA lightly for the first couple years for those institutions that are attempting to comply with the law.

-Steve Straehley


To Learn More:

Offshore Tax Crackdown Opens With 30% Penalties for Banks (by Richard Rubin, Bloomberg)

Major Swiss Bank Secretly Cultivated Thousands of U.S. Tax Evaders (by Noel Brinkerhoff, AllGov)

U.S. Charges Swiss Bank with Tax Fraud for First Time (by Noel Brinkerhoff and David Wallechinsky, AllGov)


Gman 4 years ago
There are several institutions in several countries that will open accounts (bank and brokerage) entirely through the mail, even for Americans. These institutions are financially solid and in countries exercising sound monetary practices. All are non FATCA participants, and none have any US locations, placing them entirely out of US jurisdiction. See for yourself:
Neil 4 years ago
Immigrants to the US have foreign accounts for their pensions from jobs before they came to the US. FATA forces us to duplicate the information we had to put on form FinCen 144 into form 8938. Why do we have to fill in this duplicate information at high cost (tax preparers charge a lot for these forms because of the high risk). Why do we have to risk penalties of $10k / account / year for accounts that aren't taxable till we withdraw from them? The fact of the matter is that if you have worked in more than one country you can easily have accounts that will be taxed by laws designed to punish you. Nobody knows these rules put in place for tax evaders. Once the US government or a foreign government knows about these accounts their owners will loose their contents. Think a US person with a 529 account working in the UK. Won't be protected by the tax treaty. The UK government will take almost all the money. Think a UK citizen working in the US with an ISA. The US government will take all the money via the PFIC rules.
FedupUSExpat 4 years ago
Your article title is misleading. "New Law Takes Effect Allowing IRS to Examine Bank Records of Americans Trying to Evade Taxes" Your title makes EVERYONE with a foreign bank account a tax evader, which is simply not the case. I have more than 15 foreign accounts, and most of them are within a 10 minute walk from my home. I need those accounts to work and live. This law is not going to effect tax evaders at all, but what it has done is put a giant target on the backs of the 7.6 million Americans who legally live and work abroad. The whole issue, would not be an issue if the US would fall in line with every other country in the world and stop citizenship based taxation!

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