United States taxpayers around the world have been paying close attention to some of the changes being made to existing tax laws. In 2010, the Foreign Account Tax Compliance Act (FATCA) went into effect, which was designed to capture tax revenue from the overseas accounts of U.S. citizens.
This law had several components, including a requirement that individuals with these offshore and foreign accounts comply with the provisions or face significant financial or criminal penalties. The Internal Revenue Service had allowed individuals time to comply with these new rules, but stated that this grace period could end at any time, without any warning.
The IRS recently announced a change in one of the FATCA provisions, which could have an impact on those with foreign accounts. FATCA had called for all financial institutions to compile a list of all those American taxpayers holding accounts and report this information back to the United States. The deadline had been set for January 1 st, 2014, but the IRS recently pushed this back until July 1 st, 2014. Institutions that fail to comply would be penalized by having 30 percent of all dividends, interests or payments that they were to receive withheld.
Some countries expressed concern over reporting this information, as they did not feel that they could disclose this to third parties, even if the third parties were government agencies. The U.S. is trying to figure out a way to address these concerns, by signing agreements with other countries who would be allowed to collect this information on the IRS’s behalf, and then report it back to the agency.
Other banks have struggled with putting the right systems in place to be able to comply with the FATCA rules. With the extension of the deadline now in place, the IRS hopes that these banks will be able to complete any necessary technological upgrades.
FATCA has already resulted in many individuals receiving fines and jail time for failing to report overseas assets. Certain institutions have already paid fines to become compliant with the upcoming law.
While the delay may help some organizations and individuals, it could mean that the IRS will be much more aggressive when enforcing the rule once it is in effect. The new law could result in substantial penalties for those who are believed to be committing tax evasion.
Those who have questions about complying with the provisions of FATCA should speak to an experienced tax law attorney about what they can do to prevent certain penalties from being imposed. An attorney can discuss various options that may be available to taxpayers, and also help them prepare any documentation that may be necessary.