The IRS Uses FATCA to Find Offshore Money. Tax Expert Rob Wood Explains It
The Foreign Account Tax Compliance Act (FATCA) is a tool the IRS uses to gather information about foreign bank accounts of American taxpayers. If you have money in an offshore bank, chances are you’ll hear from the IRS and encounter FATCA. Tax lawyer Rob Wood explains in this report what a taxpayer should do when FATCA comes knocking. He also wrote about the subject in two recent Forbes articles, “IRS & FATCA Hunt Offshore Accounts” and “Bank Letters About Foreign Accounts: What To Do.”
Wood explains that FATCA, enacted in 2010, is a federal law that affects both taxpayers and foreign banks. The point of the law is to help the IRS gather information about the existence of accounts owned by American taxpayers in foreign banks. FATCA requires taxpayers to report on their foreign assets. FATCA also requires foreign financial institutions to “rat out” Americans who have money in these institutions.
Wood says that a number of foreign banks will send letters to their American customers asking the customers to verify that they are fully tax compliant with the IRS. If you get such a letter, you should not ignore it. Wood recommends that a taxpayer in this spot should contact a tax adviser for guidance on what to do next. It’s important to respond truthfully. Don’t tell the foreign bank that you are reporting your foreign assets to the IRS if, in fact, you are not doing so.
Wood notes that the Paul Manafort trial is highlighting some of the problems that can stem from filing false tax returns and failing to disclose foreign bank accounts. Failure to report can lead to criminal charges. One must pay taxes on income from any source, including foreign banks. Taxpayers need to understand that foreign banks will not send them a Form 1099 listing the income. Wood says to look at bank statements, figure out the interest amount, report that amount, and file other disclosure forms that are required. The form traditionally filed was the FBAR. Now, it is being rebranded as FinCEN Form 114. Again, Wood suggests that a taxpayer dealing with reporting foreign bank accounts should get tax advice.
Then there are taxpayers who have foreign assets they have failed to disclose who have not been tagged by the IRS as yet. What should they do? Some people think of themselves as “small fry” who will never be noticed by the IRS. Wood suggests that it’s not worth the risk to try to slip under the IRS’s radar. There are too many ways to get caught, and the pain of getting caught could be considerable. There are a number of strategies one might employ to fix the problem. Wood suggests that any of the possible solutions is better than doing nothing.
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.