The implementation of the US’ Foreign Accounts Tax Compliance Act (“FATCA”) has recently been extended by the IRS to June 30, 2014, from the original January 1, 2014 date. The extension gives foreign banks additional time before they must submit their US customers’ names to the IRS, or, failing that, face a 30% withholding on each dollar paid by US payors to such foreign banks.
Foreign banks are now in the process of collecting information about their US customers (US residents, citizens or “green card” holders) with the full intention of sharing this information with the IRS once the deadline expires.
According to several reports, Israeli banks, as early as July 1, 2014, will begin submitting information to the IRS on an account-by-account basis, listing the highest balance in the account since 2008, the names associated with the accounts and whether transfers went in or out of the account. According to media reports, the Swiss branches of Bank Leumi, Mitzrahi Tfachot and Hapoalim are under investigation and may, as part of a plea bargain, turn over names sooner than the FATCA extended deadline.
The IRS’ aggressive approach may, unintentionally, pick up taxpayers who had no intention to hide funds, but merely did not know about the reporting obligations (like citizens living abroad for many years) or forgot they had the account (like US persons who inherited an account from their parents and had no significant activities therein). It will most certainly include those taxpayers whose intention in opening and maintaining a foreign account was induced by tax evasion.
Therefore, US taxpayers with foreign accounts are faced with a ticking time bomb. If their name appears on a list submitted to the IRS from their foreign bank, and if they failed to voluntarily come clean about their foreign accounts and assets, these taxpayers are exposed to severe penalties as well as criminal prosecution.
The IRS has created programs specifically designed to encourage US taxpayers to voluntarily disclose their foreign accounts. However, these programs are only available if the IRS does not already have the taxpayer’s name by virtue of some bank list or other independent source. In addition, the IRS has indicated that a taxpayer who had the opportunity but failed to apply to one of these programs will receive no sympathy if audited.
Accordingly, all US taxpayers with foreign accounts or foreign income are urged to immediately consult with a tax attorney to understand their exposure and their various options.
ACT NOW! Time is running out!