NEW YORK (MainStreet) Today is a "dark day for the 7 million Americans living overseas and for U.S. firms that operate globally," says the head of one global financial firm. The IRS claims it is a day to "combat the misuse of offshore assets."
As the Internal Revenue Service implements major changes in its voluntary offshore assets compliance program, the Foreign Account Tax Compliance Act (FATCA) also goes into effect. Today, thousands of offshore financial institutions are required to begin reporting to the IRS the foreign accounts of American clients holding more than $50,000. Failure to report the accounts will now trigger a 30% tax penalty to the financial institution.
Concurrently, U.S. taxpayers living at home or abroad can now report foreign assets through new "streamlined" compliance filings. The IRS says the changes are "intended for U.S. taxpayers whose failure to disclose their offshore assets was non-willful." Since the launch in 2009 of the voluntary disclosure program, more than 45,000 taxpayers have come into compliance -- paying about $6.5 billion in taxes, interest and penalties.
Meanwhile, the IRS and the U.S. Department of Justice are stepping up their investigations into foreign financial institutions that may have assisted U.S. citizens in avoiding the filing and payment of taxes.
Nigel Green, founder and CEO of deVere Group, which has 80,000 expat and international clients, says FATCA brands Americans overseas as "financial pariahs."
"It is claimed by its proponents that this new tax act is designed to catch tax evaders who illegally shelter money offshore. This is a noble aim," Green admits. "But FATCA cannot possibly tackle this important global issue effectively due to its dragnet, untargeted approach. Instead, what it does because of its plethora of serious unintended adverse consequences is to brand Americans who choose to live and/or work overseas as financial pariahs. U.S. expats are now routinely rejected from foreign financial institutions, such as banks in their country of residence, because FATCA's costly and onerous regulations mean Americans are now typically deemed more trouble than they are worth."