The Foreign Account Tax Compliance Act (FATCA) governs reporting of foreign financial institutions concerning assets held by American citizens. Such institutions face substantial penalties for failing to report these assets.
“Combat tax evasion”
U.S. tax officials deal with this underreporting through FATCA. In 2010, President Obama stated the primary purpose of FATCA was to “combat tax evasion.”
Changes made to the Treasury Department in 2016 enabled officials to crack down on violators. For example, foreign-owned companies in the U.S. must obtain a tax identification number. This is to better track transactions.
We can’t assume that foreign assets will go unreported or under-reported. The European Union is onboard regarding FATCA. The EU also provides incentives to others to report on offshore income owned by American residents.
Penalties regarding underreporting
With a number of tools at its disposal, the IRS takes underreporting seriously. The IRS claims to lose $458 billion in revenue due to underreporting of business income. The IRS also believes offshore service providers help facilitate this underreporting.
The penalties do not just apply to foreign banks. FATCA rules impact Michigan residents with over $10,000 in offshore accounts. Offshore assets remaining undeclared can mean such residents could also face penalties.
Again, tax penalties for a failure to report are harsh. These penalties include levees, wage garnishments, seizure of such assets, and jail time.
Should you face prosecution for failing to disclose foreign assets or should you have questions concerning whether you are in compliance with current law regarding such reporting, it would be wise to speak with an experienced tax attorney. The consequences for noncompliance are high. An attorney can guide you regarding compliance. In the event you face prosecution, an attorney can be there to defend you as well.