The IRS has seen its share of problems in the last few years. It has had its budget cut, which has compromised its ability to audit and pursue delinquent tax filings. It has been tied up in the “targeting” scandal, accused of going after 501(c)(3) organizations based on their political views. But one area where it can proclaim a significant success is with the overseas collection of taxes from U.S. citizens.
The commissioner announced that tax collections from the Foreign Account Tax Compliance Act (FATCA), have now topped $10 billion. The program, begun in 2010, has resulted in 100,000 taxpayers coming forward and reporting 96,000 income tax returns, both amended and those for delinquent taxes.
This has been achieved as the IRS has assembled a worldwide network of reporting countries and banks. The Service has essentially made the sometimes expensive task of reporting and paying delinquent income taxes preferable to the potential punishment that awaits taxpayers who fail to come into compliance and are hit with criminal sanctions for willful violations of FACTA.
More than 100 countries now report financial transactions. The stick the IRS has used to obtain compliance from overseas institutions that failure on their behalf is met with a financial “death penalty,” locking them out of the U.S. market.
This means that U.S. citizens with financial accounts overseas are increasingly likely to be reported to the IRS. If they find out about your accounts from a bank or financial institution overseas first, the penalties can be massive, with some banks triggering a 50 percent penalty for that non-compliance.
It is highly advisable that you carefully examine all of your holdings and ensure that none of them could potentially trigger an FBAR (now the FinCEN Form 114) reporting obligation. You may need a tax attorney to assist with your review and with any compliance steps, should that become necessary.