There has been some controversy surrounding the Foreign Account Tax Compliance Act that many people in San Francisco may have heard about. The new law forces overseas banks to share with the Internal Revenue Service very personal information on American customers whose bank accounts have more than $50,000 in them. Not only does this law demand a lot of banks that may not even operate in the United States, but it also violates many countries’ privacy laws.
IRS and tax issues are extremely tricky and it is no surprise that dealing with tax law gives many people panic attacks. From an audit to tax litigation, trying to clear your name with the federal government can be difficult to do alone. Working closely with a tax lawyer is one of the best ways to reduce the risk of overpaying and fighting inappropriate tax issues with the IRS. In the case of overseas money, a tax lawyer may be able to provide some insight into what the government can and cannot divulge.
One of the countries that have taken particular offense to the requirements of the Tax Compliance Act is China. Recently, the deputy director general of legal affairs at the People’s Bank of China has argued that it violates China’s privacy laws to release clients’ information. Though he was quick to say that these were his own opinions, not those of the Chinese government or his bank as a whole, he did point out that the U.S. should limit how far it tries to affect financial institutions outside of its borders.
The punishment for financial institutions that fail to report this information to the American government will be prohibited from doing business in the United States, according to the Tax Compliance Act. Overseas banks will also need to take into account the cost of complying with the Act before ultimately deciding how best to proceed.
Source: Reuters, “China central bank official slams U.S. tax dodging law,” Michael Flaherty, Nov. 28, 2012