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Amnesty programs expiring as foreign banks comply with FATCA
SOUTHFIELD, Mich. – The unofficial period of grace to reveal foreign bank accounts to the IRS is ending for U.S. taxpayers. Those who don’t comply with the law may soon find themselves facing stiff penalties that exceed the amounts in their accounts.
In 2010, Congress enacted the Foreign Account Tax Compliance Act (FATCA), which pressured foreign countries to require their banks to turn over lists of all U.S. account holders.
When the FATCA was enacted, the IRS also came out with the first of a series of amnesty programs designed to allow taxpayers with undisclosed foreign bank accounts to come clean voluntarily to minimize their exposure to penalties.
Now, five years later, foreign banks are getting into position to comply with the FATCA and turn over their U.S. account holders. Therefore, the window of opportunity to take advantage of the amnesty programs is closing quickly.
“The Foreign Account Tax Compliance Act was a major shakeup in the international banking community,” said Venar Ayar of Ayar Law Group. “Everything pretty much changed overnight. But for foreign banks to come into compliance with these intergovernmental agreements, it took years of work. Banks had to put tools into place to flag these accounts and compile lists. Now, foreign banks are finally ready to comply and turn over their U.S. account holders.”
In 1970, Congress enacted the Bank Secrecy Act in an attempt to combat money laundering and tax evasion. Under this law, U.S. taxpayers who have financial accounts located in other countries are required to file certain reports with the government every year. Taxpayers who fail to disclose their accounts could be subject to stiff penalties that may exceed the money in their accounts.
However, the Bank Secrecy Act has rarely been enforced because the IRS couldn’t discover taxpayers with foreign accounts. Even many CPAs and tax preparers never knew these rules existed, or that they were filing their clients’ tax returns incorrectly.
Everything changed in 2010 with the enactment of the FATCA. Now that foreign countries are able to comply with the FATCA and provide lists, the IRS will be able to confirm whether or not taxpayers have reported their foreign accounts and can start assessing penalties.
The first of the amnesty programs the IRS enacted was the 2009 Offshore Voluntary Disclosure Initiative (OVDI). Under this program, anyone who neglected to disclose foreign accounts could file all FBAR forms, correct tax returns and pay a fixed penalty based on the value of foreign accounts. This fixed penalty is generally far less than the penalties taxpayers would face if they were caught.
Since this original program passed, there have been many changes, and the passage of related programs designed for people to come into compliance with respect to foreign accounts. While the rules are constantly changing, one important thing has always been the same: in order to qualify for any of these amnesty programs, taxpayers must voluntarily disclose their accounts before the IRS finds out about them.
The window of opportunity on these amnesty programs is closing quickly. The time to act is now. Any U.S. citizen or resident who has money in any other country needs to disclose their accounts every year. Anyone who has fallen behind on their foreign account reports needs to contact a tax attorney immediately to analyze their situation and advise them of their options, and the best way for them to come into compliance.