The questions keep rolling in. After a little research to ensure current information, the answers roll right back out. With many clients sending their tax information to me early this year, things are starting to get pretty busy. Time for researching is at a premium, so when help comes along from the IRS, it’s welcome.
The topic of a number of recent questions has been focusing on overseas bank accounts and the Foreign Account Tax Compliance Act (FATCA). Much consternation exists out there about the latter. Consternation that is misplaced, I might add. Too many inquiries express a misunderstanding of just to whom FATCA is directed.
True, FATCA will have some limited impact on your financial life, but only indirectly. FATCA is aimed at financial institutions, not the individual account owners, and is the wake-up call for foreign financial institutions to “get on board” the information sharing wagon.
FOR INDIVIDUALS, WE HAVE …
Appearing in my business email inbox this week was a well-written 
release by the IRS that sheds some light on this entire matter. Rather than parsing it out and paraphrasing as best as I can, I’ll just quote its contents right here so that all of you, dear readers, can see what’s up Uncle Sam’s sleeve.
Here, now, from the IRS Newswire, issue # IR-2016-17, is your weekly dose of “tax speak.”
Hiding Money or Income Offshore Resides on the “Dirty Dozen” List of Tax Scams for the 2016 Filing Season
WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.
“Our continued enforcement actions should discourage anyone from trying to illegally hide money and income offshore,” said IRS Commissioner John Koskinen. “We have voluntary options to help taxpayers get their taxes and filing obligations in order.”
Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 54,000 disclosures and we have collected more than $8 billion from this initiative alone. The IRS conducted thousands of offshore-related civil audits that have produced tens of millions of dollars. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.
The IRS remains committed to our priority efforts to stop offshore tax evasion wherever it occurs. Even though the IRS has faced several years of budget reductions, the IRS continues to pursue cases in all parts of the world, regardless of whether the person hiding money overseas chooses a bank with no offices on U.S. soil.
Through the years, offshore accounts have been used to lure taxpayers into scams and schemes.
Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire people to help with their taxes.
Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shut down scams and prosecute the criminals behind them.
Hiding Income Offshore
Over the years, numerous individuals have been identified as evading U.S. taxes by hiding income in offshore banks, brokerage accounts or nominee entities and then using debit cards, credit cards or wire transfers to access the funds. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.
The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as the banks and bankers suspected of helping clients hide their assets overseas. The IRS works closely with the Department of Justice (DOJ) to prosecute tax evasion cases.
While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant penalties and fines, as well as the possibility of criminal prosecution.
Since 2009, tens of thousands of individuals have come forward voluntarily to disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.
At the beginning of 2012, the IRS reopened following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.
Third-Party Reporting
Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements (IGAs) between the U.S. and partner jurisdictions, automatic third-party account reporting began in 2015, making it less likely that offshore financial accounts will go unnoticed by the IRS.
In addition to FATCA and reporting through IGAs, the Department of Justice’s Swiss Bank Program continues to reach non-prosecution agreements with Swiss financial institutions that facilitated past non-compliance. As part of these agreements, banks provide information on potential non-compliance by U.S. taxpayers. Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.
Hi Paul –
Noted with much appreciation. As you remember, I sought your advice precisely about this not too long ago because it applies to me as a dual citizen who has a Philippine-earned income deposited in a Philippine bank. Thank you once more for the easy-to-understand explanation you provided regarding, among other things, my tax obligation as a U.S. citizen and taxpayer.
You’re most welcome, John. Making the difficult “easy to understand” is difficult in itself, but reports of succeeding make it all worth it.
Hi Paul
Saw this on the BBC yesterday. Sad that people, of any nationality, feel they have to go to these lengths.
http://www.bbc.com/news/35383435
Cheers
AJ UK
Hi AJ – Thanks for sharing the article.
Sorry to say, but the article is very poorly researched and quite anecdotal. There are some hard facts in it, but the author’s intent on “moving the reader’s soul” instead of reporting the news serves no good purpose.
In fact, some of the blatant errors is the article could well influence others’ ways of thinking, causing them to react without their finding out exactly “what it’s all about.”
Poor “Jane in the Paris café” – she says she’s renouncing her U.S. citizenship because of FATCA. Hopefully “Jane” is a figment of the author’s imagination. I’d hate to think that there is someone so uninformed as to think that FATCA has anything to do with them personally, causing them to renounce.
Hi Paul
I did wonder what the rate of accuracy was for the article. Probably second hand facts and hearsay!
What gets me is… all my money is liquid. In a savings account. Therefore it has been taxed. Not the interest I understand but. If I decide to transfer some to my and the wife’s account in the PI…. will it be taxed again… not the interest. But the full sum. This is what I don’t understand in this debacle. Can anyone help me. If I ask a tax pro back here… they don’t know squat.
Whoa! Just how will your money that you transfer to your wife’s account in the Philippines be taxed? (hint: it won’t be)
Plenty of misinformation abounds on the topic of having money in a foreign financial account.
If you own, have an interest in, or have signature authority over a foreign financial account, there may be additional reports and tax forms that you might (or might not) have to file. They are mostly informational in nature.
One report is an FBAR (Foreign Bank and financial Account Report). Mandatory filing of an FBAR is triggered by having the aggregate value of all of your foreign financial accounts exceeding USD $10,000 at anytime during the calendar year. This report merely identifies the existence of the account(s) and its(their) maximum value during the year; and is filed with a separate division of the U.S. Treasury Department, not with the IRS.
Another is income tax Form 8938, Statement of Specified Foreign Financial Assets. This form is part of an income tax return, and its filing is triggered by your having “specified” assets in a foreign financial institution with an aggregate value that exceeds a certain threshold amount. The threshold amount is determined from a table, by taking such items as filing status (single, joint, etc.) and your location (in the US or overseas). Again, it’s mostly a report that identifies the assets; but it goes a step further to identify any taxable income generated by those assets and “mapping” that income to the elements of income of the first page of the tax return. Through this filing, you would be showing the IRS that yes, interest was received from a foreign bank and its amount was reported with other interest on the tax return.
Of course, things are a little more “involved” than that, but the above should give you an idea of “what it’s all about.”
Sorry but nearly sliding this off as a reporting requirement and not some twisted money grab misses the point of why folks are upset.
The US is only 1 of TWO countries in the world that thinks they have the right to tax you on money or interest made outside its borders. The other is Ethiopia.
Granted there may be no tax levied now, but there could be, and quite frankly the USA should not be taxing or requiring reporting based on some accident of birth. It’s that simple.
Bottom line is this whole FATCA boondoggle costs more that it catches. It’s about control.
However thanks for the effort to at least pass the word. But leaning towards that it’s no big deal might mean your just telling folks to comply, but not agree.
Hi Joe – Sorry, but I am not “sliding anything off” as something it isn’t.
I reported exactly what is, period. Mentioning it as a “twisted money grab” is a fantastic fabrication – a Lie – being propagated by those too blinded by their own greed to see that no one is after their treasure trove.
The U.S. is one of only two countries that taxes based on citizenship rules, not residency rules. An ammendment to the U.S. Constitution made it so. There are no thoughts of having rights – there are laws, rule and regulations that impose such taxation.
As to there being no taxes levied via these administrative reports is a fact. It’s not something that is “granted” – it is something that is in existence by law. All of the “coulda,” “woulda,” and “shoulda” in the world does not change the fact that taxes are not levied via these administrative reports, period. Arguing a “slippery slope” on level, solid ground is absurd.
“Accident of birth”? Give me a break. Maybe “accident of citizenship” would be more accurate, but such observations are pure foolishness.
Can you prove that “bottom line”? How much does FATCA cost? Can you demonstrate what makes FATCA a boondoggle? Exactly what does it control, who is doing the controlling, and how is that control being affected?
With all being said and done, I believe that you don’t have the slightest idea what FATCA is all about. You don’t know at whom it is directed (hint: it’s not the individual taxpayer). Worst of all, you don’t even have a simple clue as to what I am doing and what my motives are.
Please do yourself a favor and learn about all of these tax issues from reputable sources. When it comes to assets held in foreign financial institutions and income that those assets might generate, there are about five specific elements of tax code that address them and the processes for reporting them. (Hey, fatca is not one of them!) Check them out.
Tito and other readers,
Here is a very good unmasking of what FATCA and the damaging effects on it has on the world. More importantly Americans abroad.
Skip to 2:00 mins to get right into it.
Title: The truth about FACTA
https://www.youtube.com/watch?v=UbOr4WAdIt8
Ok. Let’s just leave our little disagreement at this. LIP is really not the forum for diving deeper into this issue
Most times what you write is spot on, so me not agreeing with what you wrote this one time is not a big deal in the grand scheme of things. My treasure is safe and out of real or even potential danger and that’s all I care about in this instance.