FATCA

FATCA—the Foreign Account Tax Compliance Act—takes effect in 2014 and the IRS will start penalizing foreign banks if they don’t hand over Americans.

Most foreign countries and their banks are getting in line to take their medicine from the IRS, so don’t count on bank secrecy anywhere.

Here are a few basic facts:

You must report worldwide income on your U.S. tax return.

If you have a foreign bank account, you must check “yes” on Schedule B.

You may also need to file an IRS Form 8938 with your Form 1040 to report foreign accounts and assets.

Tax return filing alone isn’t enough – U.S. persons with foreign bank accounts exceeding $10,000 on aggregate at any time during the year must file an FBAR by June 30 of each year.

Tax return and FBAR violations are dealt with harshly: Tax evasion can mean five years in prison and a $250,000 fine. Filing a false return? Three years and a $250,000 fine.

Failing to file FBARs can also be considered a criminal offense. Fines can be up to $500,000 and prison sentences can reach up to ten years in length.

Even civil FBAR cases are scary, with non-wilful FBAR violations drawing a $10,000 fine.

For willful FBAR violations, the penalty is the greater of $100,000 or 50% of the balance in the unreported foreign account for each violation.

Each year you didn’t file is a separate violation.

Those numbers can really add up and be much worse than the 27.5% Offshore Voluntary Disclosure Program penalty.

It is important to stay on top of your tax returns.

Need help? Please send an email to Sean Hayes at seanhayes@ipglegal.com.