What’s FBAR and What’s It Got to Do with Me?
Maybe nothing, but if it does, look out!
As an 87-year-old Florida man recently learned, the cost of not fully disclosing an offshore bank account to the IRS can be quite high. A federal jury ruled that the man owes the U.S. government $2 million in civil penalties (150 percent of the value of his Swiss bank account).
The Foreign Bank Account Report (FBAR) was originally set up to prosecute money laundering, but it is now also being used to combat offshore tax evasion. As of the end of 2013, the IRS enforcement program has resulted in collections of over $5.5 billion. Yet, the U.S. Treasury Department believes it has collected only a fraction of the tax actually due related to offshore tax evasion.
The biggest obstacle to identifying additional tax due has been the lack of reporting from foreign jurisdictions. During 2010, Congress enacted the Foreign Account Tax Compliance Act (FATCA). FATCA provides Treasury the means to identify U.S. residents who hold offshore funds in the approximately 30 countries that have concluded FATCA agreements with the U.S. Implementation with respect to receiving reporting from foreign countries begins with the 2014 tax year. Financial institutions within those foreign countries with FATCA agreements are required to report to Treasury the names, Social Security numbers, account balances and income earned from accounts held offshore.
And the noose is tightening. There are numerous other countries that have either signed agreements that are not fully ratified or are close to signing agreements. The FATCA reporting from these additional countries is likely to occur during the 2015–2017 tax years.
Taxpayers who have not previously reported these assets need to consider taking action. Currently, the Offshore Voluntary Disclosure Program (OVDP) remains in place for taxpayers to disclose offshore accounts. There are other options to the OVDP program that require careful consideration. With FATCA coming into full force, the time for taxpayers to make a voluntary decision with respect to still undisclosed foreign accounts is drawing to a close. Taxpayers with undisclosed foreign accounts should seek professional help to review the potential options available.
As of April 30, 2014, the following countries have concluded FATCA agreements with the U.S.: Belgium, Bermuda, Canada, Cayman Islands, Chile, Costa Rica, Denmark, Estonia, Finland, France, Germany, Guernsey, Honduras, Hungary, Ireland, Isle of Man, Italy, Japan, Jersey, Luxembourg, Malta, Mauritius, Mexico, Netherlands, Norway, Spain, Switzerland and the United Kingdom.
Now is the time to take action on any undisclosed foreign accounts. Contact Doug Eckert today to review your potential options.