Just about anyone who has a foreign bank account is aware of the importance of reporting these accounts to the U.S. federal government. According to the Bank Secrecy Act, any citizen or resident of the United States with signature authority or financial interest over any financial account in another country with an aggregate value that exceeds $10,000 at any point during the year needs to file a FinCEN Form 114 Report of Foreign Bank and Financial Accounts (FBAR).
Financial institutions and banks across the globe face similar requirements due to the Foreign Account Tax Compliance ACT (FATCA). Foreign financial institutions must report the value of U.S. accounts and the identity of the account holders. Unfortunately, many foreign banks and financial institutions don’t report this information accurately. In fact, a study performed by the Aberdeen Group revealed that only 44 percent of all foreign banks and other financial institutions disclosed information accurately under FATCA.
Why do these errors occur?
Most people assume that it would be fairly easy for foreign financial institutions to accurately report the values of accounts and the identities of account holders. However, the truth is that these foreign financial institutions encounter a few obstacles and difficulties when it comes to providing accurate FATCA filings. Only 19 percent of foreign financial institutions have an automated solution to collect data required for FATCA. Since FATCA has only been in place since July 2014, foreign financial institutions haven’t had much time to develop automated solutions.
Unfortunately, the reporti ng requirements these foreign financial institutions need to fulfill will likely become more complex with time as more and more nations are introducing comparable reporting requirements. Banks that don’t provide accurate FATCA filings could suffer penalties as high as 30 percent of their income from the U.S.
Consequences for taxpayers who don’t report overseas accounts
American taxpayers who fail to report foreign accounts purposefully or due to negligence can face dire consequences. In fact, some people have been sentenced to spend months in jail for failing to report income to the IRS. According to the law, an individual can face 12 months to 18 months in jail for not reporting income in overseas accounts. Of course, a number of factors will influence the length and severity of the sentence.
Undoubtedly, international tax issues can be very complex. Therefore, if you have a foreign bank account, you need to hire an attorney who has a good understanding of the applicable laws. If you are have been accused of failing to report foreign accounts, the experienced international tax attorneys at Kundra & Associates can work to protect your interests and obtain the most positive outcome possible.