The Third IRS Program Is Still Underway

Whatever your view on the IRS, its hard not to be impressed by its foray into global reporting, disclosure, and withholding. After U.S. actions against UBS and others, the IRS began a compliance push like no other. In addition to record victories, the IRS has mounted several successive voluntary disclosure programs to net global income and transparency.

The third IRS program is still underway. It turns out many American citizens and permanent residents were not filing U.S. tax returns or were not reporting their worldwide income. Like it or not—and many do not—the only way to reliably fix the situation and avoid exposure to even worse IRS penalties and possibly even jail is to join the IRS program.

There are many nuances to observe.  But an even bigger development was FATCA, the Foreign Account Tax Compliance Act enacted in 2010. FATCA requires foreign banks to report U.S. account holders to the IRS. After identifying U.S. account holders, the institutions must impose a 30% tax on payments or transfers to account holders who refuse to identify themselves.

To avoid withholding, an institution must enter into an agreement with the IRS to:

• Identify U.S. accounts;
• Report certain information to the IRS regarding U.S. accounts; and
• Withhold a 30% tax on certain payments to non-participating foreign financial institutions and account holders unwilling to provide the required information.

Foreign institutions that don’t sign an IRS agreement will face withholding on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments. The law has rankled many in the international community, reaching the long arm of the IRS into foreign countries.  In effect, it orders foreign institutions to do the IRS’s dirty work.

That view seemed to threaten the law.  But now FATCA looks secure with 5 nations joining U.S. in tax evasion crackdown. Still, some Americans feel the squeeze. Many Americans are finding it difficult to open legitimate new accounts abroad and facing closure of old ones based on their nationality.

American Citizens Abroad complains that expatriates face an impossible position. The IRS has done a good job of delaying FATCA’s implementation.

When you file there is a way to reduce your taxes.  If you use a CPA with international tax experience, suggests a former IRS agent, you should file and opt out.

The information provided herein is not intended as legal, accounting, financial or any type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.