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Foreign Account Tax Practice Act (FATCA)

Information from Our Federal Criminal Defense Lawyers

In 2010, a law entitled The Foreign Account Tax Compliance Act was passed. This act is commonly known as FATCA. According to the Internal Revenue Service (IRS), FATCA is an important development in the United States' efforts to combat tax evasion by those who hold investments offshore. FATCA impacts not only U.S. citizens and residents, but also foreign financial institutions.

For more information or to discuss your matter, call our offshore banking defense lawyers, serving clients nationwide at (407) 901-5852 or contact us online.

What Does FATCA Mean for Me?

The consequences to U.S. taxpayers holding foreign financial assets are significant. Under FATCA, a form must be filed yearly with the income tax return, to report foreign financial assets.

  • Failure to report the foreign financial assets through filing the FATCA form (Form 8938 Statement of Specified Foreign Financial Assets), carries with it various penalties, including:
  • Civil penalties, a $10,000 penalty for not filing timely, up to an additional $50,000 for the continued failure to file Form 8938 after requested by the IRS.

The second prong of FATCA that has a major impact on U.S. citizens and residents who hold foreign assets is the requirement placed upon foreign financial institutions. Under FATCA, foreign financial institutions must undertake certain due diligence procedures with respect to account holders to identify U.S. citizens and residents. In addition, FATCA requires foreign financial institutions to report annually its account holders who are U.S. citizens and residents. The foreign financial institutions must also report foreign entities with substantial U.S. ownership.

Am I Required to File?

A U.S. taxpayer must file the FATCA Form 8938 based upon the value of offshore assets. A married couple filing a joint return who resides in the U.S., must file the Form 8938 if assets exceed $100,000 on the last day of the year or more than $150,000 at any time during the year.

For an unmarried taxpayer living in the U.S. or for a married taxpayer filing separately, the Form 8938 is required if the foreign financial assets are more than $50,000 on the last day of the year or $75,000 at any time during the year.

If married taxpayers filing joint income tax returns live outside the U.S., they must file the Form 8938 if the foreign financial assets are more than $400,000 on the last day of the year or $600,000 any time during the year. If an individual living offshore is unmarried or married and files a separate return, then the Form 8938 must be filed if the foreign financial assets are more than $200,000 on the last day of the year or more than $300,000 at any time during the year.

As in all tax-related laws, the details of what constitutes an asset subject to reporting can be complex. Certain assets are obviously subject to reporting such as offshore bank accounts and securities accounts. Also covered are interests in offshore companies and contracts.

Other Penalties

The requirements of FATCA are in addition to the requirement to file the FBAR to report the existence of offshore accounts with foreign financial institutions that in total exceed $10,000 at any time during the year.

The civil and criminal penalties for failure to file the FBAR and disclose offshore accounts over $10,000 a year are quite serious and include potential conviction of a felony and incarceration, as well as civil penalties that can be as high as 50 percent of the value of the unreported account every year.

Perhaps one of the greatest aids to the government's efforts to combat tax evasion is the provision of FATCA which requires foreign financial institutions to report accounts to the IRS. The IRS estimates that over 77,000 foreign financial institutions will be complying with this requirement. This poses a high probability that people with undisclosed foreign accounts and assets will be subject to civil audits which can turn into a criminal prosecution.

The OVDP (Offshore Voluntary Disclosure Program) is ending as of September 28, 2018, and therefore, people with unreported offshore accounts will no longer be able to obtain immunity from prosecution through the OVDP.

The IRS has already started opening audits on those who have not filed the FATCA Forms. The audit will start with a letter from the IRS setting an appointment to meet with the IRS agent conducting the audit and to turn over various records. The letter does not reveal that failure to file the FATCA Form and the failure to disclose all income and required assets constitutes federal crimes that can result in long terms in prison.

It is extremely important that anyone receiving such an audit letter consults with an attorney experienced in criminal tax defense. The risk of the civil audit turning into a criminal case is high.

Contact the Law Offices of Horwitz & Citro to protect your rights and avoid prosecution due to agents misunderstanding your position or intentionally attributing false or misleading statements to the person under audit who meets with the IRS without an experienced criminal tax defense attorney.

To learn more, call the federal criminal defense attorneys at the Law Offices of Horwitz & Citro, P.A., at (407) 901-5852.

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