After years of studying and crafting new rules on how to tax more hidden overseas assets, the IRS recently announced the publication of rules for the Foreign Account Tax Compliance Act.
Congress passed the act in March 2010, and businesses sought a delay for the January 2014 start date. Basically, it’s the United States government’s way of penalizing overseas financial institutions that don’t report to the IRS information about their American customers who have certain assets over $50,000.
If a bank or individual doesn’t comply with the law, big penalties await. It’s the IRS’s way of responding to the scandal that involved multiple Swiss banks, where some American taxpayers were discovered to hide millions of dollars from the long arm of the United States government.
With these new rules, part of the burden is placed on overseas banks. If they don’t report their American customers hiding assets offshore, they’re precluded from participating in U.S. securities markets.
Foreign banks have until 2015 to report required information to the federal government. The required information includes account holders’ names, addresses, and the balance of any account, including dividend and interest payments.
Foreign governments are making one-on-one agreements with the U.S. government to coordinate the information sharing. Uncle Sam is finalizing agreements with Switzerland, Mexico, Norway, the United Kingdom, Denmark, Ireland, and Spain.
The Foreign Account Tax Compliance Act is just the precursor to more aggressive IRS enforcement of tax evasion laws. But it doesn’t matter if your hidden assets are overseas or within U.S. borders.
If you owe back taxes to the IRS, collection actions waged against you can include a wage garnishment or bank levy. But working with a tax professional or tax attorney can help increase your chances of avoiding big penalties or harsh punishment at the hands of IRS agents.
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