Foreign asset reporting requirements are nothing new. US taxpayers have long been required to report worldwide income, and the FBAR filing requirements have been around since the 1970s. Congress and Treasury have increased the pressure in recent years, beefing up FBAR penalties, establishing additional foreign asset reporting requirements, and devoting significant resources to identifying and penalizing non-reporters.
Some taxpayers – especially expats who have not given up their U.S. citizenship – may not realize that opening a foreign bank account may trigger U.S. reporting requirements. Others have simply ignored these reporting requirements, perhaps assuming that their offshore accounts will escape notice.
Starting this year, non-reporters may be in for a rude shock. On March 31, 2015, under the Foreign Account Tax Compliance Act (FATCA), certain financial institutions began reporting to the U.S. government account information pertaining to U.S. taxpayers. Financial institutions in other jurisdictions will begin reporting this information in the coming months. More than 100 countries have either signed intergovernmental agreements or have reached agreements in substance with the U.S., facilitating FATCA reporting for financial institutions in those jurisdictions. Reporting and account review requirements for participating financial institutions will expand over the next few years, and foreign financial institutions that do not comply will be subject to a 30% withholding tax on certain payments of U.S. source income.
The IRS and Treasury offer voluntary disclosure programs for those with foreign accounts who are ready to come in from the cold. U.S. taxpayers who participate in these programs may avoid criminal penalties and may reduce financial penalties. Those who keep their heads in the sand may soon find that there is no place left to hide.