Today a key provision of the Foreign Account Tax Compliance Act (FATCA) goes into effect. The 2010 law aims to combat tax evasion accomplished through offshore accounts by setting up information sharing agreements between the IRS and foreign financial institutions or foreign governments. To date more than 80 jurisdictions have reached such agreements with the IRS and over 77,000 foreign financial institutions have agreed to share information with the U.S. The provision that goes into effect today is a 30% tax to be applied on transfer to offshore institutions who have not agreed to FATCA information sharing.
Because of the volume of jurisdictions and institutions who have agreed to FATCA agreements, the IRS does not expect to collect much revenue from this tax. That, of course, was never the point of the 30% tax to begin with. Rather it was always meant to serve as motivation for governments and financial institutions to enter FATCA agreements with the US. The end goal has always been to expand the IRS’s ability to combat tax evasion.
FATCA is part of a multi-year crackdown by the IRS and the wider Department of the Treasury on offshore tax evasion, where U.S. taxpayers hide income and assets from exposure to U.S. taxation by keeping them out of immediate U.S. jurisdiction. Prior to FATCA the standard policy was something of an honor system. The laws on the books said U.S. taxpayers had to disclose their offshore assets–primarily by filing a Report of Foreign Bank and Financial Accounts (FBAR)–but the IRS had limited ability to, as it were, keep the taxpayers honest. Empowered by FATCA, that dynamic has changed.
Fortunately for taxpayers, there is another side to this crackdown. The IRS has a program for taxpayers to voluntarily disclose their offshore assets–the Offshore Voluntary Disclosure Program (OVDP). By participating in the OVDP, taxpayers pay lower penalties and avoid criminal prosecution. One important caveat is this: once the IRS begins investigation into a taxpayer, they are no longer eligible for the OVDP. And with FATCA, the IRS is well equipped to investigate foreign banks and other financial institutions and in fact has already begun investigations with banks like Credit Suisse in Switzerland and Bank Leumi in Israel among many others. For many taxpayers, the window to take advantage of the OVDP may be closing.
Horowitz Law Offices has represented numerous taxpayers in connection with their participation in the OVDP, as well as other IRS matters. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org