Treasury Proposes Multilateral Agreement for Offshore Compliance

The U.S. Treasury Department announced this week a proposal for new regulations intended to make it easier for overseas banks to comply with Foreign Account Tax Compliance Act, or FATCA requirements.

An article in Reuters U.S. enlists 5 EU nations in offshore tax crackdown explains these proposals as the U.S. Government not only addressing concerns of foreign financial institutions regarding the Foreign Account Tax Compliance Act, or FATCA, but also the implementation of a efficient multilateral approach to finding Americans with unreported offshore accounts.

According to the article, FATCA requires that foreign financial institutions either collect and turn over data on U.S. clients with accounts of at least $50,000, or withhold 30 percent of the interest, dividend and investment payments due those clients and send the payment to the IRS. Financial institutions from countries with laws protecting banking secrecy and client confidentiality were not able to participate in FATCA due to the nature of data sharing. The Treasury has acknowledged this and addressed secrecy and privacy concerns in the new multilateral framework. Additionally, the U.S. announced in a recent joint statement its intentions to make FATCA “partners” of France, Germany, Italy, Spain and Britain for their ongoing information collection regularly disclosed to the U.S. This partnership means that these countries would not have to enter into separate data disclosure agreements with the IRS.

The U.S. has also announced that it would reciprocate with these same five countries by disclosing information about their citizens who have financial holdings in the U.S. The Treasury Department stated that foreign financial institutions could rely on information they have already collected about their account holders under current anti-money laundering rules to determine whether they have U.S. taxpayers as clients. All information must then be collected and disclosed to the IRS. Financial institutions that refuse or fail to comply with FATCA regulations would face stiff IRS penalties; fines for taxes due, a penalty of up to of 40 percent of the amount in question and heightened IRS scrutiny. Financial industry insiders believe that a partnership between the U.S. Treasury and the financial services industry is a good thing especially since FATCA compliance is seen as a costly challenge for financial services firms and their U.S. clients.

The moral of the story: it’s only a matter of time before all offshore account holders are revealed; you can run but you can’t hide from the IRS. If you have an unreported offshore account, being proactive will help your cause. Hiring a tax attorney or certified tax resolution specialist who understands cases involving offshore accounts, can minimize severe IRS penalties and help structure an IRS payment plan that you can live with.

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