FATCA and the impending big swap

On Sept. 30, 2015, most countries with a Model 1 Intergovernmental Agreement (IGA) in place will begin to report financial information to the United States government under the Foreign Account Tax Compliance Act (FATCA). In Model 1 IGA countries, foreign financial institutions (FFIs), e.g., banks, hedge funds, and insurance companies, report US account information to their foreign government on FATCA reports. The foreign government then remits that information to the US government. In most Model 1 countries, the due date for FFIs to file FATCA reports with their Model 1 country has already passed. Because 2015 is a transitional year, some Model 1 countries will allow their FFIs to file late reports, e.g., while the United Kingdom’s FATCA report due date is May 31, the country will allow FFIs with reasonable cause to submit late 2014 reports. Mexico has also extended its due date until Sept. 15, 2015. Many other countries offer similar relief for 2014 FATCA reports. FFIs not in compliance with 2014 reporting rules should attempt to do so as soon as possible.

By fall 2015, the US government will possess a wealth of previously unavailable information about US persons’ overseas accounts. The IRS may use this information to ensure US persons have reported all income and bank account information. Failure to do so can result in costly penalties and even imprisonment. For instance, the maximum civil penalty for failure to file a Report of Foreign Bank and Financial Accounts (FBAR) is the greater of $100,000 or 50 percent of the total bank account balance, per violation. In United States v. Carl R. Zwerner, Case No. 12-22082 (SD Florida, June 11, 2013), Zwerner paid the IRS penalties and interest totaling approximately $1.75 million for failure to file an FBAR, where the highest bank account balance was approximately $1.5 million. The IRS may use FATCA report information to assess similar penalties against other taxpayers.

In light of the impending FATCA deadline and cases like Zwerner, taxpayers not in compliance with all foreign information reporting or with unreported foreign income do have options. The IRS currently offers an offshore voluntary disclosure program, a Streamlined Offshore Voluntary Disclosure Program, and a Delinquent International Information Return Submission Procedure. There is no guarantee that these programs will be available to taxpayers after FATCA reports are filed.

For further information on FATCA requirements, or to learn how Baker Tilly IRS controversy and international specialists can help with compliance, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific  circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written  to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax  structure of any transaction or matter that is the subject of this communication and any attachments.