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What is FATCA and Why is it Important to U.S. Taxpayers with Offshore Accounts?

Offshore Account Update

Posted on October 16, 2020 |

As a U.S. taxpayer, you are obligated to report your foreign assets to the federal government, and you must pay federal income tax on your worldwide income from all sources. While there are exceptions to these general rules (i.e. certain small assets do not need to be reported, and there are various tax exemptions for foreign-derived income, just as there are for domestic income), if you have offshore accounts, it is imperative that you work with an experienced Boston international tax attorney to make sure you are in compliance.

For U.S. taxpayers with offshore accounts, one federal law that is of particular relevance is the Foreign Account Tax Compliance Act (FATCA). As the U.S. Treasury Department explains:

“FATCA requires foreign financial institutions (FFIs) to report to the IRS information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest. FFIs are encouraged to either directly register with the IRS to comply with the FATCA regulations . . . or comply with the FATCA Intergovernmental Agreements (IGA) . . . in their jurisdictions.”

While not all foreign nations have agreed to comply with FATCA, many have—including most foreign nations in which U.S. citizens commonly hold offshore accounts. As a result, if you own offshore accounts or other foreign assets, not only do you have an obligation to report these to the IRS, but the foreign bank or business that holds them likely has an obligation to report them as well.

What Happens if You Don’t Comply with FATCA?

If you have offshore accounts or other foreign assets and you do not comply with FATCA, the consequences can be severe. The IRS expects all U.S. taxpayers to comply with their reporting and payment obligations, and it does not look favorably upon taxpayers who fail to disclose their foreign holdings that are reported by foreign banks or businesses under FATCA.

Once you fail to timely disclose offshore holdings – and once the IRS learns about your holdings through a foreign bank’s or business’s FATCA reporting – it can be too late to rectify the situation completely. You may be able to avoid certain consequences by working with an experienced Boston international tax attorney, but you are unlikely to avoid penalization entirely.

If you have only recently learned of your obligation to report offshore assets to the IRS, and if you are not yet facing an IRS audit or investigation, you may be able to minimize your adverse consequences by utilizing the IRS’ voluntary disclosure process. Voluntary disclosure allows U.S. taxpayers to remedy prior offshore account reporting violations without facing charges of tax fraud or tax evasion. However, there are strict rules regarding who can qualify for protection (and when); and, before you voluntarily disclose anything to the IRS, it is important that you discuss your situation with an attorney.

Request a Confidential Consultation with Boston International Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

Do you have offshore accounts or other offshore assets that you have not reported to the IRS? To discuss your situation with Boston international tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in confidence, call 617-692-2989, email ket@thornlawgroup.com or tell us how we can reach you online today.

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