The IRS Wants to Know the Assets You Have Overseas – and It May Soon Have More Tools to Find Out!
Thursday, March 1, 2012 • 5:31pm
Under the Foreign Account Tax Compliance Act (“FATCA”), enacted by Congress in 2010, banks, investment advisory firms, and similar financial institutions outside the United States are required to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.
On February 8, 2012 the IRS issued proposed regulations prescribing in detail FATCA’s information reporting requirements for foreign financial institutions. The 388 pages of proposed regulations can be found on the IRS website at: http://www.irs.gov/pub/newsroom/reg-121647-10.pdf. The regulations mandate that foreign financial institutions do “due diligence” to identify accounts held by U.S. taxpayers. Among other provisions, foreign financial institutions must identify accounts of U.S. taxpayers with a balance that exceeds $50,000.00 for individuals and $250,000.00 for entities. Before these rules become final, the IRS is accepting comments until April 30, 2012, and will hold a hearing on May 15, 2012 in Washington, D.C.
Because many foreign financial institutions do business only outside of the United States, they are beyond the reach of FATCA. To solve this enforcement problem, in part, on February 8, 2012, the Treasury Department released a joint statement from the United States, France, Germany, Italy, Spain, and the United Kingdom, regarding an intention to work together to implement FATCA. The joint announcement contemplates foreign financial institutions reporting the information required under FATCA to their respective governments, which would then transfer the account information on an automatic basis to the IRS.
As more countries decide to work with the IRS to implement FATCA, the tax information the IRS seeks will become increasingly available, making it more likely that the IRS will discover the vast majority of unreported foreign accounts of U.S. taxpayers.
To dovetail with the FATCA regulations, the IRS has extended its Offshore Voluntary Compliance Initiative. For many U.S. taxpayers, this is an opportunity for more lenient penalties provided they are willing to disclose their accounts before the IRS discovers them. Others may avoid problems with the IRS if they inform their accountants of accounts outside of the U.S. That way the accountant (or if you do your own taxes, you) can begin to report your accounts on your 2011 federal and state income tax returns and timely complete information Forms TD F 90-22.1 and Form 8938, if applicable. For assistance in determining how FATCA may affect you, and whether to make a voluntary disclosure to become compliant with the IRS rules and regulations, please contact Lindabury, McCormick, Estabrook & Cooper, P.C. at (908) 233-6800.
Lindabury, McCormick, Estabrook & Cooper, P.C., is a mid-sized general practice law firm. We provide quality legal services to individuals and their families, including business planning & succession, elder law, estate planning, immigration & naturalization, divorce and family law, real estate, tax planning and wills trusts & estates. We also provide litigation and transactional counsel to a broad spectrum of clients, including global private and public corporations, health care institutions, trade associations, banks and financial institutions, nonprofit organizations, and privately held businesses in the New Jersey and Mid-Atlantic region. Our attorneys provide vigorous and cost-effective counsel to help individuals and businesses meet their objectives. For more information visit www.lindabury.com
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