One year after the Foreign Account Tax Compliance Act formally went into effect taxpayers continue to struggle with questions.
FATCA, enacted in 2010 and effective the summer of 2014, requires all foreign financial institutions to report data about U.S.-owned accounts to the Internal Revenue Service. FATCA along with FBAR, Form 114, Report of Foreign Bank and Financial Accounts filings are ways that the IRS and Treasury monitor offshore accounts and ensure proper payment of U.S. taxes.
The IRS has vigorously pursued taxpayers for the failure to file FBAR disclosures. As the implementation of FATCA regulations goes into effect, many are asking for leniency.
IGAs and delays in full implementation
The U.S. signed intergovernmental agreements (IGAs) with many other countries, but some of those countries have yet to pass their own implementing legislation.
Banks with international business, such as Bank of America Corp, UBS Group AG and Citigroup Inc., just to name a few, have been putting into place compliance mechanisms for years. But there are still questions of how they will work. In addition, the regulations cannot cover every situation.
There are also questions about what the government will do with the information it receives. Next year, FATCA compliance could become an issue on more IRS tax audits.
Discrepancies are cropping up that affect what types of accounts must be reported and exactly what information must be shared. For example, Canada has passed implementing legislation that defines trusts more narrowly than the IRS.
While questions remain, it is extremely important to seek the advice of an experienced tax attorney on issues related to the disclosure and taxability of foreign accounts.
Source: Bloomberg, “Taxpayers Still Facing Big Challenges One Year After FATCA Goes Into Effect,” Alison Bennett, June 30, 2015