The Internal Revenue Service (IRS) is continuing its crackdown on foreign accounts. Those who have assets in accounts in countries other than the United States, or even signatory authority of such accounts, are required to report the accounts to the IRS. A failure to do so can result in serious penalties, including steep fines and potential imprisonment.
In order for the crackdown to work, the United States has teamed up with a number of other countries to open the lines of communication about these accounts. Many countries have signed agreements to share information about the presence of accounts, the most recent being the Republic of Turkey.
What is this agreement? The agreement to provide information about these accounts is based on the Foreign Account Tax Compliance Act (FATCA). This law is designed to reduce the risk of illegal tax avoidance practices by hiding assets in foreign accounts.
In order for this law to work, other countries must agree to exchange tax information with the United States.
What type of information is shared? Generally, countries share the identity of their United States citizen, resident or green card holder customers along with information about any assets held within that country.
Financial institutions within Turkey and many other countries have also agreed to extend this requirement to those associated with the United States. In addition to information about citizens of the U.S., this includes those with an address or headquarters within the U.S.
What happens if the information is not provided? Individuals and entities that fail to provide the information can face a penalty of a 30 percent withholding tax over the U.S. source income.
What should I do if I have a foreign account? Those with assets in a foreign account or signature authority over such assets should take steps to disclose the presence of the accounts.
Due to the potential penalties that could be applied if the IRS views that the account was hidden, it is wise to seek legal counsel. An experienced tax lawyer can guide you through the process, working to reduce the risk of penalties.