Foreign Account Tax Compliance Act (FATCA) - US Taxpayers/HIRE Act (Golding & Golding, A PLC)

Foreign Account Tax Compliance Act (FATCA) – US Taxpayers/HIRE Act (Golding & Golding, A PLC)

Foreign Account Tax Compliance Act (FATCA) – US Taxpayers/HIRE Act

FATCA is the Foreign Account Tax Compliance Act. It is designed to reduce international tax evasion and fraud.

The goal of FATCA the was for the United States/IRS to enter into Foreign Account Tax Compliance Act (FATCA) agreements with as many countries as possible — that were willing to comply with the U.S. terms.

Currently, there are more than 110 countries that have entered into reciprocal IGA (Intergovernmental Agreements) with the U.S.

Moreover, more than 300,000 foreign financial institutions (FFIs) have agreed to comply with FATCA.

To see if your FFI is listed, please click here.

Understanding the Acronym FATCA

When it comes to international tax, acronyms are all the rave (FBAR, PFIC, OVDP, SDOP, SFOP, etc.).

Foreign

In order for FATCA to even be in play, the assets or accounts must be foreign in nature. In other words, a $20,000,000 account located in the U.S. in a domestic institution does not have to be reported via FATCA.

Account

Account can mean many different things. Typically, common sense leads a person to believe that an account is a “bank account.” But, with FATCA, the term “account” is much more than just your typical checking or savings account.

It can mean an investment account, foreign life insurance policy, trading account, etc. There are exceptions, exclusions and limitations such as whether the foreign institution is a branch of a U.S. Institution, or wholly owned subsidiary…

Moreover, when reporting FATCA on Form 8938, unlike the FBAR, it also includes assets such as stock certificates or individually owned stock.

Tax

Tax involves taxes due to the U.S. One of the main purposes of FATCA is to reduce Offshore (e.g., international & foreign) evasion and non-reporting of income due to the U.S.

Due to rampant offshore evasion, the IRS believes it is losing out on billions of dollars each year.

Compliance

Compliance involves following the rules. When it involves FATCA, there are two parts to it. There is the compliance of the individuals (reporting their individual income, assets, accounts abroad) and compliance of the institutions (reporting account holder information).

Act

FATCA is an act. It was written into law in 2010. FATCA reporting for individuals commenced on the 2011 tax return (Form 8938) and for institutions, enforcement commenced around 2014.

FATCA for Individuals

FATCA for individuals essentially requires the individual to report their foreign accounts, investments, assets and income on Form 8938 “Statement of Specified Foreign Financial Assets.”

FATCA for Institutions

FATCA for institutions is a bit different. In accordance with the various different (but generally similar) IGA – Intergovernmental Agreements, FFIs agree to report accountholder information to the U.S. Government.

The IGAs are “reciprocal” so that the U.S. is also required to report U.S. accountholder information to foreign countries as well. Many foreign countries are also seeking to combat Offshore Evasion as well, including Italy and Ireland.

Civil Penalties (Form 8938)

Beginning with the 2011 tax year, a penalty for failing to file Form 8938 reporting the taxpayer’s interest in certain foreign financial assets, including financial accounts, certain foreign securities, and interests in foreign entities, as required by IRC § 6038D. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

Criminal Penalties

When it comes to Offshore and Foreign Account Penalties, FATCA (Foreign Account Tax Compliance Act) is not typically the basis for a criminal conviction.

Usually, a person knowingly/willfully fails to file an FBAR, Form 5471, Form 3520-A, etc., and that is the catalyst which sparks a criminal investigation by the IRS Special Agents and possible referral to the DOJ.

FATCA is raising the stakes and moving from civil violations to criminal enforcement.

FATCA Criminal Conviction 

Recently, on September 11, 2018 the former Chief Business Officer and former Chief Executive Officer of Loyal Bank Ltd, pleaded guilty under FATCA for committing FATCA Fraud.

Specifically, the CEO of the offshore bank (with offices in Hungary and Saint Vincent & Grenadines) pleaded guilty to conspiring to defraud the United States by failing to comply with the Foreign Account Tax Compliance Act (FATCA).

The CEO was extradited to the United States from Hungary in July 2018. 

What Can You Do?

Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

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