Ignoring FATCA Requirements Can Be a Crime, Even for Foreigners! Rob Wood Explains
The Foreign Account Tax Compliance Act (FATCA) has been a subject of much concern and commentary. Many discussions have focused on what FATCA requires of US taxpayers, but the law is also aimed at foreign financial institutions. In this report, tax lawyer Rob Wood explains how the IRS and the Justice Department are enforcing FATCA against foreign entities, something he also discusses in his article, “Skipped FATCA Disclosures Can Be Criminal.”
Wood notes that FATCA was enacted in 2010 but was not implemented for a few years. It is “a pretty ambitious US law” in Wood’s view. It applies not only to US taxpayers (who are required to report their foreign-based assets), but also to foreign institutions. The law’s intent is to penalize such institutions if they fail to help the IRS collect information on US citizens who have assets in those foreign institutions. The law requires foreign banks to “ferret out” information on US citizens. There have been suggestions that the law is unconstitutional, but to date there has been no court decision to that effect.
In the meantime, FATCA is in effect, and it is working. The IRS has gotten a lot of information because of FATCA. And the law is being enforced. Wood discusses a case where the US government has filed a criminal indictment against foreign banking officials alleging that they tried to sidestep the US law. The important lesson for American taxpayers is that it is essential to report foreign bank accounts to the IRS. The interest on these accounts is income, and the IRS wants to know about it.
Wood also notes that foreign income needs to be reported on the proper forms. These are typically Foreign Bank and Financial Account (FBAR) forms. It is also referred to as a FinCEN (Financial Crimes Enforcement Network) Form 114. The appropriate FBAR must be filed every year, along with a Form 8938, an IRS form that is filed with the annual tax return to report foreign assets. Wood says that there is some duplication between these forms, but it is best to file every form. “More reporting is always better than missing something.”
The bottom line is that the IRS and the Justice Department take this matter very seriously, and they are watching.
Robert W. Wood is the Managing Partner of Wood LLP, San Francisco. Often listed among the best tax lawyers in America, Wood has broad experience in corporate, partnership and individual tax matters. Concerning the tax treatment of litigation settlements and judgments, he is perhaps the preeminent tax lawyer in the United States. He is also an authority on merger and acquisition tax matters, tax opinions, offshore account and entity disclosures, and many types of tax controversies. The Legal Broadcast Network is a featured network of Sequence Media Group.