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The U.S. Treasury has determined approximately 7.2 Million Americans, Green Card Holders and U.S. Residents are failing to properly identify themselves as deficient in U.S. Tax Compliance on overseas bank accounts, overseas assets, partial ownership of overseas companies, trusts or other entities.  These failures are quite serious and will eventually cost the individual significant tax, penalty, interest and, possibly, criminal prosecution.  At this point, the IRS knows of approximately 72,000 Americans have now come forward, but that is only a small fraction of those still out of compliance.  Now, the IRS is proceeding with FATCA to bring even higher compliance; voluntary or involuntary, by banking institutions located overseas to turn over information on Americans with offshore accounts even if the individuals only have one of the following marks:

  1. Born in the US
  2. Address in the US
  3. In Care Of Address in the U.S.
  4. Forwarding mail to the U.S.
  5. U.S. Passport
  6. Green Card
  7. Legal Representative in the U.S.

Soon, you will be faced with a voluntary or involuntary ability to have an offshore bank account even if you live and work overseas.  Because of the cost and inconvenience of banks coming into compliance with FATCA, may banks located overseas will chose the option to be FFIs deemed compliant. To be deemed compliant FFI, the bank must comply with procedures to ensure that it does not maintain U.S. accounts.  This means that the banks will be forced to close bank accounts that its holders are U.S. citizens, Green Card holders, are born in the U.S., have mailing addresses in the US, mail forwarding to the U.S. or an in care of address in the U.S.

FATCA requirements for U.S. taxpayers and FFIs will be phased in over the next few years. Starting in 2012 for calendar year 2011, U.S. individual taxpayers with total overseas assets in excess of $50,000 generally are required to report the assets to IRS on Form 8938 (Statement of Specified Foreign Financial Assets).  Beginning on January 1, 2014, U.S. entities will be required to withhold 30 percent on certain payments to FFIs.  U.S. Taxpayers may be subject to penalties for failure to disclose overseas assets and for underpayments related to such undisclosed assets.

By entering into an agreement with IRS, the FFIs agree to employ due diligence procedures to identify and report details on U.S. account holders to IRS and withhold a percentage of payments under certain circumstances.  FFIs excepted from FATCA include foreign governments (including a wholly owned agency or instrumentality), international organizations, foreign central banks, and institutions IRS deems to pose a low risk of tax evasion.

Separate from the FATCA requirements, the Bank Secrecy Act requires individuals and some businesses to file reports on foreign bank financial accounts with balances exceeding $10,000 during the year.  Specific information is filed on Treasury Form TD 90-22-1, known as the Report of Foreign Bank and Financial Accounts (FBAR), and is processed by IRS. Taxpayers required to file the FBAR form may also have to file Form 8938.