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