Online FATCA Registration Begins

The Foreign Account Tax Compliance Act (FATCA) was enacted in the wake of the UBS scandal to crack down on tax evasion overseas.  “FATCA requires foreign financial firms to report to the IRS offshore accounts held by Americans that are worth more than $50,000.

Foreign financial institutions that fail to comply with FATCA face a 30-percent withholding tax on their U.S. source income, a penalty that could effectively freeze them out of U.S. financial markets.

FATCA does not take effect until July 2014, but there have been many steps leading up to it, including this latest step: the registration process.  Remember though, the registration process is not an individual tax requirement but, rather, is meant to secure the cooperation of financial institutions.  If you are a in charge of a foreign bank, investment firm, or insurance company and you need to know, the schedule of events appears to be as follows:

Registration may be done on paper, but the IRS highly encourages that it be done through their secure online web application.  Once a firm has registered, the IRS issues them a Global Intermediary Identification Number (GIIN).  Registration ensures that the IRS knows who to call when they have questions about suspected tax cheats.

 

Foreign Accounts & Quiet Disclosures

There is a general, overriding principle in the world of Federal Tax that goes something like this: if you voluntarily come forward to admit your prior tax shenanigans and get yourself back in the good graces of the IRS, there will be less negative consequences than if the IRS catches you trying to get away with it.

This principle holds true with respect to the reporting of foreign bank accounts.  Taxpayers who are caught hiding assets in foreign accounts are subject to criminal prosecution, and could very well face jail time.  But under the IRS voluntary amnesty programs, those who come forward and disclose their offshore assets are promised they won’t go to jail in exchange for payment of penalties that are based on a percentage of their account balances.

There are some who want to get back on the grid without having to pay hefty penalties.  They do this by making a so-called “quiet disclosure” of foreign assets; they report their foreign accounts without giving the government information about accounts held in previous years.  This type of disclosure sometimes tricks the IRS into believing the accounts are brand new.

According to a recent report by the Government Accountability Office (GAO), there may be more quiet disclosures happening around the nation than the IRS has the ability to identify.  The IRS is taking tips from GAO on how to detect more of these quiet disclosures.