March 27, 2014 “Congressional Research Service Report for Members and Committees of Congress” entitled “Reporting Foreign Financial Assets Under Titles 26 and 31: FATCA and FBAR”
All citizens of the United States as well as U.S. resident aliens are required to report their worldwide income for U.S. federal income tax purposes. However, where foreign assets are involved, this is an area in which taxpayers, knowingly or unknowingly, may fail to comply with the law.
There are numerous information reporting requirements involving foreign assets that may assist the Internal Revenue Service (IRS) in recognizing a failure to report foreign income; however, both taxpayers and tax preparers may not be fully compliant with filing these forms. Again, this may be more a matter of ignorance of the requirements than any intent to skirt the law.
Neither the reporting requirement imposed by the Foreign Account Tax Compliance Act (FATCA) nor the Foreign Bank Account Reporting (FBAR) imposed by the older Bank Secrecy Act directly involves reporting income for tax purposes. Instead, each involves reporting the existence of financial assets or accounts located outside of the United States. Although in some cases the same accounts or assets may be reported on each information-reporting form, both forms may be required. Failure to file either form if required may result in significant penalties, in some cases amounting to the entire balance of the unreported account or more.
Since FATCA’s passage, there has been criticism of the FFI and NFFE provisions and how they relate to other countries, including whether FATCA’s requirements are inconsistent with existing U.S. treaty obligations and what happens when the requirements conflict with another country’s domestic (e.g., banking or privacy) laws. The Treasury Department and IRS have reached out to other countries and entered into bilateral intergovernmental agreements with 24 of them. In general, these provide that the other country’s FFIs will be deemed compliant with FATCA’s requirements if they comply with the agreement. FATCA’s requirements have also been criticized as overly burdensome and stakeholders have indicated they have insufficient time to prepare for them. The IRS has responded by extending various deadlines under FATCA—while the 2010 law enacting FATCA provides that, in general, its provisions “apply to payments made after December 31, 2012,” the IRS has on several occasions extended various deadlines, with many provisions scheduled to go into effect on July 1, 2014.
Finally, legislation has been introduced in the 113th Congress that would repeal much of FATCA (S. 887); modify FATCA with the intent of “strengthening” it (H.R. 1554, H.R. 3666, S. 1533, and S. 268); or require that its effects on U.S. citizens living abroad be studied (H.R. 597).
… worldwide income is subject to taxation by the United States. Thus, U.S. citizens and U.S. residents generally are required to pay U.S. income tax on income from sources in foreign countries. Nonetheless, it has been reported that some taxpayers apparently believe that they can successfully avoid U.S. income tax by maintaining assets outside of the country. This “avoidance” is actually “evasion,” which is illegal. Until recently, it was very difficult for the Internal Revenue Service (IRS) to detect such evasion.
This report outlines the U.S. reporting requirements for foreign assets and accounts under FATCA along with the reporting requirements (FBAR) under the Bank Secrecy Act. It also addresses the requirements imposed on foreign financial institutions and the agreements the United States has with other countries to cooperate in information reporting. Additionally, recently proposed bills to modify FATCA either through repeal or amendment are discussed.
“The Congressional Research Service (CRS) does not provide direct public access to its reports, requiring citizens to request them from their Members of Congress”
I think this is the report:
Thanks, bubblebustin. I’ve updated the link with yours to save a step or to to reach the report.
Very interesting find.
“All citizens of the United States as well as U.S. resident aliens are required to report their world-
wide income for U.S. federal income tax purposes.”
Even the very first sentence of that report is misleading. It’s not only US citizens and resident aliens who are required to file!
Well spotted. Misses out non-resident greencard holders, as well as “non-carbon based” U.S. persons, such as trusts. Corporations are U.S. persons, too.
I think the whole world should veto CBT by America because it takes a lot of money from their own treasuries. They should take a stand.
@Polly, so true. I, for the life of me, can’t understand why other countries don’t recognise the potential Trojan horse threat to their treasuries.
1. They believe that the exchange of information will be reciprocal and lots of people have money hidden in the U.S.
2) They aren’t thinking about dual nationals.
3) Maybe aren’t aware of the complexity and nastiness of the tax law towards U.S. citizens abroad. Other countries that have used CBT have taken a percentage cut or not taxed certain forms of income and a lot of the information out there contains mistakes.
4) Maybe foreign governments think, they have solved the problems surrounding their savings and investment schemes for tax residents merely by excluding them in the IGAs.
5) Maybe they know, but don’t want to let on how weak they are vis-a-vis the U.S.
Louisiana Republican representative Vance McAllister who defends the practice of repairing gas pipelines with duct tape and a garbage bag. He has no shame when it comes to publicly spewing such nonsense.
The Credit Suisse guilty plea makes me think that it won’t take long before NO financial services are available abroad for US persons. Maybe that will finally be a catalyst for change.
I don’t condone Credit Suisse’s egregious behaviour, but all foreign financial institutions are going to consider that in addition to having FATCA reporting responsibilities, they are vulnerable to prosecution if they had or have US account holders who did not file correct income tax returns or FBARs. The guilty plea was to aiding and abetting income tax evasion by US taxpayers (it was not to helping wealthy Americans “hide assets”). And the statement of fact looked at least as far back as the 1970s in regard to the evasion. Credit Suisse may have assisted tax evasion knowingly and wilfully, but what institution wants to have that fight with the IRS or DOJ, when even assisting a US person to set up a non-US corporation might be looked at as aiding evasion through the use of “sham” entities?
Yeah you`re right. They think they are going to catch their own tax cheats. But we are all guessing America is not going to let that happen. ( We know that America is the biggest tax haven of all. What are they going to say when Mexico, Equador, Colombia comes knocking at their door and asking for information about the millions stashed in US banks? Florida and Texas bankers are already very upset at that prospect.)