With FACTA going into effect, Russia may be left in the cold over Crimea

Back in March of 2010, the U.S. began to put in place the Foreign Account Tax Compliance Act, or FACTA. FACTA will officially come into effect on July 1, 2014, and will be ramped up to full implementation during a grace period that stretches into next year.

If you have offshore bank accounts or otherwise invest money overseas, FACTA has personal implications that may affect you. The act also will have broader implications, some of which, it turns out, could prove useful to the U.S. government as a diplomatic tool in the escalating standoff between Russia and Ukraine.

If you have foreign bank or investment accounts, be proactive about FACTA

Starting in July, foreign banks, insurers and investment funds will have to supply certain information to the IRS concerning any accounts held by Americans that exceed $50,000 in value. Failure to comply means foreign institutions will be subject to a withholding tax of 30 percent on U.S. investment income and would in essence be excluded from U.S. capital markets.

Few foreign banking institutions are likely to embrace these harsh sanction for failure to comply; that means if you have assets in offshore accounts that the IRS might not know about, now is the time to take immediate preemptive action to ensure you do not wind up facing excessive tax penalties or worse.

FACTA could have broader diplomatic implications between Russia and U.S.

Beyond the personal repercussions of FACTA for individual Americans, some have pointed out that the measure could have implications in the ongoing tensions with Russia.

Under FACTA, foreign nations can work out their own tax information-sharing deals with the U.S. to avoid the penalties associated with the law. As the July 1 rollout approaches, foreign states have been scrambling to get agreements in place; for instance, Australia sealed a FACTA deal with the U.S. in late April, and Singapore was close behind, closing a deal in early May.

Russia, however, does not have a deal, and their current bank secrecy laws appear to prevent their institutions from fully complying with FACTA. Unlike targeted economic and political sanctions put in place over the Crimea conflict that affect a few key individuals and institutions, FACTA penalties would apply to Russian banks and investors across the board. Some experts believe that if the Kremlin fails to reopen negotiations with the U.S. before the FACTA penalties kick in, the already fragile Russian economy could take another substantial hit.

Make sure you are in compliance with FACTA if you have foreign assets

FACTA is a broad measure that will have implications for individuals, institutions and even foreign governments. If you need help ensuring that you are in compliance before July 1, get in touch with an experienced tax attorney today; you will have more legal options to avoid tax penalties the earlier you seek legal assistance.