On behalf of Silver Tax Group posted in Offshore Accounts on Monday, September 18, 2017.
Passed in 2010, the Foreign Accounts Tax Compliance Act (FATCA) continues to be controversial. FATCA requires specific foreign financial institutions to report on assets belonging to American citizens. Reporting under FATCA is complicated. And the consequences for noncompliance with FATCA are severe.
Some assume FATCA concerns mainly bank reporting. However, Department of Justice officials have been using FATCA to request information from foreign insurance companies also.
Recently, federal officials contacted Swiss Life, Switzerland’s largest life insurance company. According to a Swiss Life spokesperson: “All insurance contracts have been categorized and been reported pursuant to the FATCA legislation.” The reason for this cooperation is simple. Swiss Life could possibly face fines for helping American clients avoid paying taxes.
Authorities are specifically reviewing “wrapper business” life insurance policies sold by Swiss Life. Authorities apparently view such policies as investment tools. A wrapper allows the insured to hold assets and stocks within the policy. In theory, these assets then grow inside the wrapper without the insured having to pay tax on the growth. The IRS now wants to know if policyholders have accurately reported such growth.
Enforcing FATCA has been challenging for the IRS. But including insurers as reporting institutions could mean the agency will be examining billions of dollars more in assets belonging to American citizens.
Taxpayers with foreign accounts
Obviously, Michigan taxpayers with foreign accounts should be wary of such IRS attention. A taxpayer accused of wrongdoing under FATCA could face having half of the account value taken. They could also face other fines and even criminal penalties.
If you have concerns about FATCA compliance, it could be important to discuss this matter with an advocate who thoroughly understands compliance requirements.