UPDATE: Information Sharing – FATCA, FBARs and the Offshore Voluntary Disclosure Program 

By Robert LadislawWilliam Blum

We have previously written about how non-U.S. banks are collecting information from their U.S. customers, information which will be shared with the Internal Revenue Service.  This is pursuant to Intergovernmental Agreements (“IGAs”) entered into between the United States and foreign governments under the Foreign Accounts Tax Compliance Act (“FATCA”).   IGAs may be negotiated under the authority of tax treaties or Tax Exchange of Information Agreements with the United States, or with countries which have neither of these.  See our blog alert, “Non-U.S. banks are now collecting data from U.S. customers pursuant to FATCA. U.S. persons with undeclared foreign accounts should become U.S. tax compliant as soon as possible.” for more detail.

There are currently 18 IGAs in force.  An additional 92 countries have IGAs which are signed and awaiting final action, or in which negotiations are substantially complete and therefore are treated as being in effect by the IRS.  An additional 8 countries are currently negotiating IGAs with the United States.  Countries with IGAs naturally include economic partners of the United States, such as the United Kingdom, Israel, Ireland, Canada, Australia, Japan, Germany, France and Spain, among many others.  Taxpayers might find it a bit more surprising that countries that have been traditionally thought of as secrecy jurisdictions or tax havens also have IGAs.  These include Lichtenstein, Luxembourg, Bermuda, Switzerland, and the British Virgin Islands, among many others.  Brazil, China and India all have IGAs.  Even Russia is negotiating an IGA with the United States.  The aforementioned countries are just a sampling of countries with IGAs.  It is safe to assume that almost every country with an even moderately sophisticated financial system either already has an IGA now or will likely conclude one in the near future.  This means that the IRS will potentially be receiving information on accounts owned by U.S. persons from almost every financial institution on the planet.

Financial institutions in several countries have already commenced reporting of accounts owned by U.S. persons.

In this type of regulatory environment, it is therefore imperative for U.S. persons who have accounts in foreign financial institutions to take action to get into U.S. tax compliance as soon as possible if they have not yet declared the existences of these accounts on their U.S. tax returns and Foreign Bank Account Reports (“FBARs”).  Such persons should enter either the offshore streamlined program (if eligible) or the offshore voluntary disclosure program.

For More Informationon entering the appropriate disclosure program:

If the IRS examines a taxpayer’s tax returns before they have disclosed accounts in foreign financial institutions, confiscatory civil penalties can potentially be imposed. In certain cases, criminal prosecution could also be a possibility.

Please contact Robert Ladislaw or William Blum with any inquiries.

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