Earlier this year, Congress passed the Foreign Account Tax Compliance Act (FATCA) as part of the HIRE Act. FATCA is designed to convince foreign banks to disclose information on accounts held by American taxpayers and corporations. It does so by imposing a 30 percent withholding tax on payments made to foreign financial institutions that refuse to identify their U.S. investors.
IRS Commissioner Douglas Shulman announced that the IRS is presently working on implementing FATCA. He believes the act will give the IRS more information on offshore assets, and give the agency more power to crack down on Americans who hide assets overseas. Shulman hopes FATCA will increase reporting on offshore assets, but says that those who do not comply will face stiff penalties.
Shulman’s plan involves making investors balk at the risks involved with hiding assets offshore. He hopes that within 10 years, the risk of hiding assets offshore will be so great that the risks will outweigh any rewards of hiding assets overseas.
Shulman seems to draw a distinction between individuals who are trying to hide their offshore assets and multinational corporations engaged in legitimate and legal international tax planning. He admits that many corporations are trying to get their taxes right, but many others are intentionally trying to get around the law. Ideally, he would like the IRS to differentiate between the two.
Cooperation with foreign governments is a key portion of Shulman’s strategy. Ideally, he wants all countries with developed tax systems to design a unified system for information reporting and sharing. Until that system is developed, the IRS plans to use its powers under FATCA to deter hiding assets offshore.
Tracking and taxing offshore investments is clearly a high priority for the IRS. Shulman seems to be offering the carrot and threatening the stick at this point, the carrot being the voluntary disclosure program and FATCA being the stick. If you have questions about taxation of your offshore assets, experienced taxation attorneys are available to advise you of your legal rights and options.
IRS.gov, “Prepared Remarks of IRS Commissioner Doug Shulman before the 23RD Annual Institute on Current Issues in International Taxation, Washington, DC,” IR-2010-122, 12/9/2010
Federal Tax Day (CCH), “IRS Considering Another Offshore Voluntary Disclosure Program, Shulman Says,” Brant Goldwyn, 12/10/2010