When does the final onslaught of data to the IRS from banks around the world begin?  What is the status of banks reporting data to the IRS under FATCA and when will FBAR and offshore related audits begin in earnest?  These are questions tax experts around the world continue to ponder as many US taxpayers with offshore accounts wait for the “other shoe to drop.”

Agreements between the United States and countries around the world under FATCA are known as InterGovernmental Agreements or “IGA’s.” In some of these agreements, banks are compelled to report banking information and transactional data regarding US taxpayers and green card holders directly to the IRS.  In most of the agreements, the banks and financial institutions are to report the information to their own sovereign tax authority, who then transfers information to the IRS.  In order for these agreements to take full force, legislation must be passed in each nation.  The US Treasury Department reported on September 23 of this year that 113 countries had completed FATCA agreements, 49 had yet to finish all steps necessary to complete the process.

One of the greatest resulting challenges may fall on international banks with branches in multiple nations who have to make independent decisions on what to do with information regarding US taxpayers.  Most are reporting to the IRS out of the fear of reprisals and being frozen out of US markets under FATCA laws.  Those banks are able to sign direct agreements with the IRS, but these may face significant legal challenges in sovereign jurisdictions that fail to complete implementation of their IGA or who limit or outright refuse participation.

The Israeli government appears to have finally substantially completed this process yesterday.  Other nations such as Taiwan, Saudi Arabia, Japan, Panama, Belgium and China are still in process.  The 49 remaining nations are divided into two major groups: 20 with signed agreements (including Belgium) pending legislative approvals or other minor steps, and 28 with “agreements in substance.”  Japan does not fall into either of these categories, and yet their FATCA status is considered to be “in effect” by the US government.

The status of banks reporting data to the IRS under FATCA is unclear, however information started to pour in from many sources (such as the Swiss) in mid-2015.  The Organisation for Economic Co-operation and Development (OECD) has developed the Common Reporting Standard or CRS which will be the system used to automate the exchange of information about financial accounts and transactions between sovereign nations around the world.  The IRS has still not fully implemented CRS access as the process continues to clear legal challenges within the US.  More than 100 nations have agreed to participate and have signed agreements to use the CRS automated system.

What does all this boil down to?  At present the system has its glitches.  However, the vast majority of countries around the world are committed to implementing CRS providing global access for all participating sovereign nations into detailed account and transactional data for all account holders, including US taxpayers.  FATCA has changed the world, and systems exactly like those imposed by the IRS will soon dominate the international financial picture.

There are fewer and fewer ways to withhold information about your financial activity from the IRS.  The penalty for attempting to do so is harsh: 50% of your total assets at their highest point each year, or $100,000 per incident – whichever is more.  The IRS has also promised criminal prosecution resulting in prison sentences for tax evasion for those who do not voluntarily disclose offshore account information.  Hundreds have already been imprisoned under the new rules.

“They’ll never be able to get to someone as small as me,” is a prevalent thought.  We hear it in our offices regularly.  The reality is CRS will make it easy for the IRS and every sovereign nation in the world to access your personal account information at will.  Well designed computer systems and software-based analysis systems will connect the dots for them.  From our perspective, the knock on your door appears to be simply a matter of time.

Soon it will not be a question of the the status of banks reporting data to the IRS under FATCA but the speed and efficiency of the IRS and the volume of IRS audits that follow.  At that point you must simply be prepared to face penalties that exceed your global assets and the genuine specter of prison.  That is the reality and the associated risk.

If this feels a bit heavy its because it is.  This is a global change.  The world did not welcome FATCA but the United States had the power to enforce it.  The question is quite simple: what risk are you willing to take with your money and your personal liberty?

Your options are:

  1. Provide a voluntary disclosure under the OVDP – Offshore Voluntary Disclosure Program
  2. Attempt to qualify for the Streamlined Domestic Offshore Procedures.
  3. Face the full fury of the IRS including overwhelming penalties and criminal prosecution

The international tax attorneys at Allen Barron are prepared to help you through this process.  We can extend an important protection from the IRS that is not available through your CPA, bookkeeper, tax preparer or financial adviser: the solid defense of the attorney-client privilege.

If you have offshore bank accounts, assets or income with a combined balance of more than $10,000 at present or any time in the past 8 years we invite you to call for a free consultation at 866-631-3470.



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