- 1 FATCA Appeal (8/2017) was Denied
- 2 Why Was There No Standing
- 3 What Does This Mean?
- 4 What Will the IRS Do to Me?
- 5 FATCA vs. Other IRS International Reporting Forms
- 6 IRS Penalties
- 7 Disagreeing with FATCA
- 8 IRS Offshore Voluntary Disclosure
- 9 When Do I Need to Use Voluntary Disclosure?
- 10 Golding & Golding – Offshore Disclosure
- 11 The Devil is in the Details…
- 12 What if You Never Report the Money?
FATCA Appeal (8/2017) was Denied
There are many individuals who believe FATCA is a bad law and they want it changed. Recently, a lawsuit was filed challenging FATCA, but the lawsuit was tossed out.
Thereafter, the plaintiffs tried again to appeal the District Court’s ruling, but the 6th circuit Court of Appeals also held the plaintiffs lacked standing, and therefore were not able to pursue the case at this time.
Why Was There No Standing
Essentially, the court found that the individuals who brought the lawsuit were not injured directly by FATCA. Moreover, while there are certain nuances and exceptions to bringing a lawsuit without actual direct harm and/or taking action against the law when they can prove that they may suffer harm in the future, the court struck down those arguments in this case.
What Does This Mean?
It means at the current time, FATCA is still law. And, if you are a U.S. Person with a Foreign Account, Income, Investment or other Foreign reporting requirement, you must still file these forms.
If you have knowledge that you should be reporting and filing foreign assets, accounts, and income in accordance with Form 8938 (and other forms) but fail to do so, you could be subject to extensive fines and penalties.
What Will the IRS Do to Me?
In reality, the IRS is understaffed and under-budget. They are not going after everybody, but it is impossible to determine who will be audited/examined and who will not. The IRS does not limit international tax audits or examination to individuals who have multi-millions of dollars stashed abroad. While chance of being audited certainly increase under certain circumstances such as being self-employed or earning significant income, plenty of other people are audited as well.
FATCA vs. Other IRS International Reporting Forms
While FATCA is relatively new, there are many different other International Tax Reporting Forms, such as the FBAR that have been required for 50 years. Even if FATCA is successfully appeals, these other forms will still be required. And, depending on the facts and circumstances of your situation, the penalties for these other forms are just as harsh (if not harsher).
Some of these International Tax Forms include:
- Form 3520
- Form 3520-A
- Form 5471
- Form 5472
- Form 8621
- Form 8865
The IRS has the right to issue extensive fines and penalties against anybody who fails to report foreign accounts, income, investments, etc. Moreover, depending on the types of penalties that are issued and the amount of the tax debt the IRS also has the right to issue pursue activities against individuals, including:
- Passport Revocation
- Customs Holds
Disagreeing with FATCA
Many, many people disagree with FATCA. They believe the law is unfair and unjust — and for many people it is. Nevertheless, if you are subject to U.S. reporting requirements and intentionally fail to meet those requirements, you could be hit with massive penalties, whether you live in the U.S. or abroad.
IRS Offshore Voluntary Disclosure
For most people, the path of least resistance for getting into compliance for FATCA, FBAR, 5471, 8621, etc. will be entering one of the approved IRS Offshore Voluntary Disclosure programs. Depending on the facts and circumstances of the situation, you may have a substantial penalty, a much smaller penalty, or even a penalty waiver if you pursue a reasonable cause submission (which comes with its own set of pros and cons)
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
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