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Fatca, Fbar, Offshore Amnesty Large Fines Coming

Overseas banks are warning current and former U.S. clients that their names and information soon will be disclosed and that such disclosure will disallow the taxpayer’s entry into the IRSs amnesty program for undeclared offshore accounts.

Taxpayers allowed to enter the IRS amnesty program for confessors own taxes, interest and penalties usually amounting to up to half of the account balance, but they are protected from criminal prosecution.

More than 39,000 taxpayers have entered the amnesty program for undeclared offshore accounts.

Many U.S. taxpayers and advisers have been criminally charged in connection with offshore accounts.

In 2009 IRS officials began an intense campaign against undeclared accounts. In my opinion tax havens where people can hide money are a thing of the past. There is no more confidentiality. Tens of thousands of taxpayers have admitted to having undeclared accounts, and other assets, and paid large penalties. Yet the most far reaching element of the US offshore account crackdown is about to happen. A provision of the foreign account tax compliance act, Fatca, requires foreign financial institutions to report information about their US account holders to the IRS. That group includes US citizens and green card holders living both in the US and overseas.

Failing to comply with Fatca will bring stiff consequences. Account holders who don't disclose to the IRS could face a 39% automatic withholding rate on payments such as interest and dividends. Institutions making such payments are supposed to verify whether the recipient is exempt from withholding with help from a large public database of entities maintained by the IRS. Account holders hit by that 30%levy will have to forfeit the money or file a US tax return to claim a refund, in effect waving a red flag at the IRS. Even if a refund is due, it will be hard to get.

If IRS says you are engaged in willful evasion there could be fines many times the value of the account or even prison. Fatca is a dragnet meant to force transparence and curtail tax evasion around the world.

For people with foreign accounts here are some suggestions. File the foreign bank accountant report or Fbar due every year by June 30. File Form 8938 required by Fatca for reporting foreign financial accountants, which is attached to the tax return.

The Fbar reporting threshold is $10,000 which applies to the total of all accounts. The threshold for form 8938 is higher and more variable. It can be as low as $50,000 for some. The Fbar form can require reporting of indirect interests, such as signature authority over an account, while form 8938 focuses on direct holdings, but the latter often requires reporting more types of assets.

Consider whether past noncompliance was willful. That is the key standard in tax law for the most serious penalties and offenses. The IRS has a continuing offshore voluntary disclosure program for such taxpayers. There are large fines but you get amnesty from criminal prosecution.

Smart planning can reduce compliance burdens and avoid the 30% withholding rate.

By Lance Wallach, CLU, CHFC
Abusive Tax Shelter, Listed Transaction, Reportable Transaction Expert Witness
Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, abusive tax shelters, financial, international tax, and estate planning. He writes about 412(i), 419, Section79, FBAR and captive insurance plans. He speaks at more than ten conventions annually, writes for more than 50 publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Public Radio’s “All Things Considered” and others. Lance has written numerous books including “Protecting Clients from Fraud, Incompetence and Scams,” published by John Wiley and Sons, Bisk Education’s “CPA’s Guide to Life Insurance and Federal Estate and Gift Taxation,” as well as the AICPA best-selling books, including “Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots.” As an expert witness Lance's side has never lost a case.

Copyright Lance Wallach, CLU, CHFC

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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