If you are an expat, a US citizen currently living in another country, or you hold business and financial interests abroad you’ve probably heard of FATCA. The Foreign Account Tax Compliance Act has been going strong and the IRS has collected over $8 billion-worth of penalty fees and taxes under its legislation. But are you complying? Many offshore account holders still haven’t participated in FATCA – and the IRS is warning that now is the time to do so, before it’s too late. Recently the IRS told US citizens and US residents that they must get with the program or risk falling foul of FATCA laws – which could have serious consequences.
FATCA Filing: An Update
There are two separate IRS programs that US citizens can join in order to comply with the demands of FATCA. These two programs are the Offshore Voluntary Disclosure Program (OVDP) and what are known as the streamlined procedures. Through these programs you can file for the correct taxes and financial requirements while also avoiding the potential penalties you could have received for not complying with FATCA in the first place. In addition, there are measures you can take to file when you have paid income tax but not included other financial detail related to offshore accounts.
Can You Get Away With It?
Many expats and offshore account holders, according to an article in Forbes, believe that they will be able to avoid detection under the FATCA legislation. Many people have chosen to ignore demands to file a FATCA return, believing that their overseas presence will somehow not be noticed, or that they are somehow exempt from the program.
But recent news reveals that the intergovernmental agreements (IGAs) that exist between the US and its partnerships abroad are strong, and highly active. Most are already operating and there is a fair amount of third-party account reports being submitted. And with the IRS increasing its activity under the FATCA legislation, it is not likely that offshore accounts will be easy to hide. Plus, the Swiss Bank program is a solid source of information on non-compliance by offshore account holders. The penalties for banks for not disclosing FATCA-avoidance are high, and many banks do not want to risk the cost of this kind of action.
Offshore Voluntary Disclosure Program and Streamlined Filing
The Offshore Voluntary Disclosure Program (OVDP) offers the chance for US taxpayers with offshore accounts they have not yet disclosed to open up the information by providing the correct tax returns that cover these overseas interests. This is a voluntary program and through it taxpayers can avoid IRS penalties if they later get detected by the IRS. The OVDP began in 2009 and since its inception there have been over 54,000 reports filed by offshore account holders and US taxpayers with interests abroad.
In addition, you can take advantage of streamlined filing to report your overseas financial interests. The streamlined procedures are designed for people whose circumstances differ from the citizens and residents covered under the OVDP program. Using streamlined filing is an easy way to comply with FATCA and therefore eliminate the risk of penalties or even possible criminal charges in the future. If you willfully ignore FATCA legislation you risk up to a $100,000 fine or 50 percent of the account’s balance, whichever is greater. If you pay the fines voluntarily they add up to much less than you can expect if you are caught out by the IRS in willfully withholding information and failing to pay the necessary taxes on offshore balances.
FATCA and Criminal Charges
The IRS has been conducting investigations alongside overseas financial institutions in order to pursue non-compliance, and has in the process pursued a number of criminal charges. It is not safe to say that you are going to be able to avoid detection, or that you are not filling out a return because you do not believe you have assets that meet the description under FATCA. Ignorance or misunderstanding is no safeguard against fines or possible criminal procedures, so expat and overseas account holders are urged to look into OVDP or streamlined filing as soon as possible.