A commentator recently noted how little American citizens living or earning money abroad know about the Foreign Account Tax Compliance Act (FATCA). A survey revealed that close to two-thirds of Americans living offshore have issues with paying taxes to the U.S. Also, only around 20 percent of such individuals felt they needed more assistance in filing their taxes.
Many directly impacted by FATCA do not understand its rules. Yet the penalties imposed for noncompliance are harsh. It can mean seizure of assets, bank levies and possible criminal charges. Fines can be as high as $100,000. In some instances, it involves seizure of half of the value of an account.
The requirement to report one’s assets and financial activities
The IRS receives a tremendous amount of information from foreign financial institutions because of FATCA. There are currently 310,000 foreign financial institutions across the globe that report on the finances of accountholders to tax authorities. These institutions come from over 100 nations.
Also, FATCA has specific filing requirements for those receiving income abroad. The IRS will compare these returns with the Report of Foreign Bank and Financial Accounts (FBAR) prepared by financial institutions. This aids the IRS in uncovering missing or incorrect information.
Investigative tools used by the IRS has now generated over $10 billion in unpaid tax revenue under FATCA. The IRS also uses various voluntary disclosure schemes to get taxpayers to come forward to reveal undisclosed assets. However, it appears the voluntary disclosure schemes will end this fall. Penalties for nondisclosure could then become even harsher.
How to deal with FATCA requirements
Confusion regarding FATCA regulations continues. That so many individuals are unaware of its requirements demonstrates the need for taxpayers to consult with attorneys who deal with FATCA compliance matters on a regular basis. It could be a major mistake to not do so.