The Foreign Account Tax Compliance Act, also known as FATCA, is an initiative launched by President Obama with the goal of keeping Americans from hiding funds offshore. While the plan may be well-intentioned, the way it's written is going to make life very difficult for offshore businesses and investors.
A recent article in the Wall Street Journal sheds some light on the subject:
"It's called the Foreign Account Tax Compliance Act, and it's a doozy. With little debate, FATCA was tucked into the Hiring Incentives to Restore Employment Act of 2010 – a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.
FATCA was the revenue side of that bill. The theory was that we would pay for the tax breaks by making fat cats hiding money in their overseas accounts pay their "fair share." The reality is that the tax breaks did little to dent unemployment, and the legislation's penalties may end up killing more U.S. jobs than all the call centers in India combined. Delayed once already, FATCA is set to take effect in January 2013.
Strictly speaking, FATCA isn't a new tax – it's a new requirement for reporting overseas financial accounts, backed up by heavy fines. It requires foreign financial banks, investment houses, insurance companies, etc. to identify any Americans among their customers and turn over information about their accounts to the IRS (or to the local government, if that country has a sharing agreement with Uncle Sam).
At the individual level, Americans are now required to report foreign accounts at thresholds beginning at $50,000. Failure to file, or filing incorrectly, means a heavy fine. Among the most wicked aspects of this legislation is that a taxpayer can rack up tens of thousands of dollars in fines even if he or she doesn't owe the IRS a dime in actual taxes.
Indeed, in a paper called "Leveling the Playing Field," the White House says "the IRS will hire nearly 800 new employees devoted to international enforcement." It's safe to say that while we will see only a fraction of that $100 billion in revenue, we will bear the full price that a globally empowered IRS can inflict.
Already, honest citizens are taking the hit. A woman emailing this reporter from Sweden says she's been shut out of a promising Information Technology partnership since the chief investor learned that having an American on board would mean opening the partnership's books to the IRS."
If you do business offshore, it’s vitally important that you pay attention to developments surrounding FATCA. As noted above, this is more than just a tax – it’s a law requiring a massive amount of paperwork to support your overseas activities. Failing to comply will result in substantial fines, even if you have done nothing wrong. This is why we are working so hard with the team in Washington to get FATCA repealed.
If you realize that you should have been reporting your foreign accounts but have not, contact us. We have helped thousands of taxpayers successfully enter disclosure programs and avoid penalties. Call us at 888-727-8796 or email info@irsmedic.com. Any information you share with us will be kept confidential.
