January 28, 2013 | FBAR
The Foreign Account Tax Compliance Act (FATCA) and Effect on 2012 OVDI
Foreign financial institutions are now required by law to disclose information on U.S. account holders, and have until the end of 2013 to implement new policies to prevent those holders from evading American taxes by using foreign bank accounts.
The program was established under the Foreign Account Tax Compliance Act, or FATCA, became law in 2010. It requires that foreign financial institutions report information about United State account holders to the Internal Revenue Service. The FATCA requires information about financial accounts held by U.S. taxpayers or other foreign entities in which U.S. taxpayers hold a substantial ownership interest. The types of financial institutions include everything from foreign banks to offshore hedge funds to private equity firms. Each industry will adapt to the changes as required.
The final rules for this program were issued by the IRS on January 17, 2013. According to the rules, the program change aligns the institutions’ requirements with those of countries under inter-government agreements that already exist between multiple countries.
The negotiations between countries established two inter-governmental model agreements:
- Financial institutions report their U.S. account-holders to their government, which will give the information to the IRS.
- Governments require that their financial institutions to register with the IRS and report to the agency directly.
Currently Norway, the U.K., Mexico, Denmark, Ireland, Switzerland and Spain have signed onto one of the model agreements. The U.S. Treasury Department is reportedly talking with more than fifty additional countries on FATCA compliance.
This program was developed to help the IRS and U.S. government ensure that Americans are properly paying taxes on income earned oversees. From a U.S. taxpayer perspective, they now have to ensure that they file their Foreign Bank Account Reporting (FBAR) form to avoid FBAR 2012 OVDI penalties.
Sources: http://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-(FATCA)
http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx
Attorney Timothy Hart
Timothy S Hart, the founding partner of the tax law firm of Timothy S. Hart Law Group, P.C. is both a New York Tax Lawyer & Certified Public Accountant. His area of expertise includes innovative solutions to solve your Internal Revenue Service and New York State tax problems, including tax settlements through the Federal and New York State offer in compromise programs, filing unfiled tax returns, voluntary disclosures, tax audits, and criminal investigations. [ Attorney Bio ]