FATCA: The Truth About Treasury’s Effort To Combat Offshore Tax Evasion

FATCA is here to stay for good simply because of the sheer volume of revenue it brings into the pocket book of the US government.

At the end of the day, it is all about the money.

The following is a article from Robert Stack is the Deputy Assistant Secretary for International Tax Affairs at the U.S. Department of the Treasury to clear up facts from fiction.

It is important for people to understand that the United States government is extremely serious about FATCA/FBAR.

If you have a situation that you need to speak about or need effective defense representation contact us today for a free initial conversation that is covered under the attorney-client privilege.

When calling our office you will need to ask to speak to one of our tax attorneys directly.

 FACTA – The Foreign Account Tax Compliance Act –  Fact from Fiction

The Foreign Account Tax Compliance Act (FATCA) is rapidly becoming the global standard in the effort to curtail offshore tax evasion.

This month’s G-20 communique marked another important milestone highlighting the importance of global tax transparency and a renewed commitment to work towards an international standard for the exchange of tax information.

With the Internal Revenue Service collecting over $5 billion the first three years  in the international effort  to collect back taxes  on foreign bank accounts you can believe that the US government will be hot on the heels of all those not in compliance.

The Tax Gap

There has been concern about the tax gap, that is the difference between the tax dollars that are owed under the law, and those that are actually collected.

Offshore tax evasion is a significant contributor to the tax gap.

FATCA establishes a process for foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS.

The US Treasury developed intergovernmental agreements (IGAs) to implement FATCA effectively.

These IGAs will require all of the relevant FFIs in a jurisdiction to report information about offshore U.S. accounts, a reporting obligation that will help the IRS catch tax evaders.

Yet despite the clear, positive benefits of FATCA, many continue to make misleading claims about its implementation and impact per Robert Stack.

Here are the facts on FATCA:

Myth #1:

Many claim it is overly costly and burdensome due to complex regulations and difficult to meet reporting requirements.

The truth off the matter the Treasury and the IRS have designed our regulations in a way that minimizes administrative burdens and related costs.

The regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years.

Many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules.

Many of these cost-saving simplifications were the result of comments received from affected financial institutions and foreign governments, which helped us to tailor the rules to achieve the policy objectives of the statute without imposing undue burdens or costs.

Myth #2.

Some claim that U.S. citizens living overseas will become outcasts in the international financial world.

Fact: FATCA withholding applies to the U.S. investments of FFIs whether or not they have U.S. account holders, so turning away known U.S. account holders will not enable an FFI to avoid FATCA.

Most of the governments implementing FATCA through IGAs will require their financial institutions to identify and report on all non-resident account holders, not just U.S. account holders.

Those governments agree with FATCA’s policy objectives, and want to facilitate the collection of information about the offshore accounts of their own residents.

For example, 19 countries have already announced a pilot project to exchange account information about each other’s residents that will be collected by the governments in line with FATCA’s due diligence and reporting procedures.

FATCA is quickly becoming the global standard for automatic information exchange and we expect the number of jurisdictions that choose to implement the same reporting procedures for all offshore accounts to continue to grow.

Fact# 3:

Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.

FATCA provisions impose no new obligations on U.S. citizens living abroad. FATCA’s withholding obligations fall on institutions making payments to FFIs, and the due diligence and reporting requirements fall on the FFIs themselves.

U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws​.

Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities.

Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.

Myth# 4:

Some claim that countries are opposed to FATCA, in part because the legislation could force foreign banks to violate laws in their own countries.

The Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance efforts.

The two FATCA model IGAs incorporate a two-pronged approach: under the first model, FFIs report to their respective governments who then relay that information to the IRS; or, under the second model, they report directly to the IRS to the extent the account holder consents or such reporting is otherwise legally permitted, supplemented by government-to-government cooperation to facilitate reporting on non-consenting accounts.

These model IGAs offer alternative frameworks for information sharing that abides by local laws.

The success of this approach is evidenced by the international response to this legislation.

To date, Treasury has signed 9 IGAs and has reached 15 agreements in substance, including with Malta, Bermuda, and the Cayman Islands. We are also engaged with over 70 additional countries and expect to conclude negotiations with several others soon.

In September 2013, G-20 leaders committed to the automatic exchange of information as the new global standard, and endorsed the development of a single model for this exchange, which is expected to be based on the FATCA IGAs.

Myth #5:

Some claim that FATCA will generate a backlash from foreign governments who view this as an overreach of U.S. law.

FATCA has received considerable international support because most foreign governments recognize how effective FATCA, and in particular our intergovernmental approach, will be in detecting and combating tax evaders. G-8 leaders recently acknowledged the central role of tax information exchange, stating in their June 2013 communiqué:

“A critical tool in the fight against tax evasion is the exchange of information between jurisdictions,” and urging that “[t]ax authorities across the world should automatically share information to fight the scourge of tax evasion.”

Myth# 6:

Some claim that FATCA will unfairly expose FFIs to heavy penalties before they have the necessary mechanisms in place to comply.

Recently announced a six-month extension to our withholding and account due diligence requirements because we recognize that FFIs need sufficient time to register for, understand, and implement their due diligence and reporting processes.

Those requirements will now start on July 1, 2014.

This extension exemplifies our commitment to ensuring that foreign jurisdictions and FFIs have sufficient time to properly prepare so that the law can be implemented effectively.

Myth #7.

Some claim that FATCA aims to use foreign banks as an extension of the IRS.

Individuals making this claim have confused reporting responsibilities with actual enforcement.

The objective of FATCA is the reporting of foreign financial accounts held by U.S. persons or certain entities with U.S. owners.

This law only requires FFIs to share information about financial accounts held by U.S. taxpayers, similar to what is already required of U.S. financial institutions; it does not include an enforcement component for those FFIs.

Myth#8.

Many individuals who call our offices believe they will not get caught.

While this is been true for the first three years, however due to many of the treaties that have been recently signed between governments, many if not all will start to comply.

At a point in time the US government will no longer be as lenient as they were in the beginning because the word has got out about the requirements of filing and registration.

We will expect to see a sharp rise in criminal prosecution. The bottom line here to anyone reading this blog is to find the government before they find you.

If you have a situation that you need to speak about or need effective defense representation contact us today for a free initial conversation that is covered under the attorney-client privilege.

When calling our office you will need to ask to speak to one of our tax attorneys directly.

The Truth about FACTA – Defense Representation – Attorneys, Lawyers – New York, Los Angeles, Chicago.