The Foreign Account Tax Compliance Act is a looming reality in 2014. This is the year it takes effect. Under the provisions of the law, the Internal Revenue Service has the capacity to financially penalize foreign banks that fail to report if they have accounts held by U.S. taxpayers.
Many experts, whether in Washington or elsewhere, suggest that the wisest action to take in the face of the complex tax issues stemming from the law's requirements is to get potential difficulties resolved. But there may be many ways to do that and each will have its own cost associated with it. Understanding the options is important
As we've written about previously, most foreign countries -- with the backing of their banking industries -- are getting aligned with the FATCA effort. That means that while banks may request a client's permission to reveal details of an account to the IRS, a negative response may well be met with an account being closed and the information being shared anyway.
In addition to FATCA, there are other tax notification obligations that individuals need to be aware of. Anyone with an interest in a foreign bank account that has held over $10,000 at any time during the year needs to report that on their 1040 Schedule B. There are also several different additional IRS forms (Form 8938 and the Report of Foreign Bank and Financial Accounts (FBAR)) that may be required if specific criteria have been met.
Knowing the requirements and finding the right resolution to tax issues depends on having clear understanding of all the factors of a given case. Getting objective guidance from experienced counsel is certain to be crucial.
Source: Forbes, "Americans Are Unwanted Worldwide (At Least By Banks)," Robert W. Wood, Jan. 1, 2014