Offshore tax compliance issues affecting more in the US

May 03, 2013 (Press-News.org) Offshore tax compliance issues affecting more in the US

Article provided by Law Office of Williams & Associates, P.C.
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As technology advances allow people to be more mobile and interconnected, in a global economy, many find themselves with assets in more than one country. This can create tax problems if people are not careful. The U.S. federal government has focused great attention on stopping U.S. taxpayers from using offshore accounts as a way to circumvent tax obligations. As a result, many taxpayers are finding themselves subject to investigation.

More coming under scrutiny

In an effort to combat overseas tax evasion by U.S. citizens, Congress passed the Foreign Account Tax Compliance Act in 2010. The FATCA requires foreign financial institutions to identify accounts held by U.S. citizens and report to the I.R.S. the account holders' names, addresses, Tax Identification Numbers, account balances, receipts and withdrawals. Non-compliant financial institutions will be subject to a 30 percent withholding from certain U.S.-connected payments, as will account holders who are unwilling to provide the information to the I.R.S.

U.S. citizens with overseas accounts containing an aggregate balance of $10,000 or more are required to report the information to the I.R.S. by filing a Report of Foreign Bank and Financial Accounts each year. Taxpayers must also file Form 8938 with their tax returns if the accounts total more than $50,000. The limits for reporting on Form 8938 are higher for those who reside overseas. Failure to report income from offshore accounts can result in a penalty of 40 percent of the income, in addition to possible civil fines and criminal penalties.

In January 2013, Congress issued the final reporting regulations for foreign financial institutions under the FATCA. The final regulations have spurred the federal government to cast a wider net in its efforts to find tax evaders. Many taxpayers who did not know that they were not in tax compliance suddenly found themselves in trouble.

Common tax issues

One of the more frequent issues that is arising as the I.R.S. cracks down on offshore accounts pertains to immigrants who left bank accounts open in their home countries and did not report the interest or accounts on their U.S. tax returns. These people are suffering severe penalties because of confusion regarding reporting requirements.

Others who are working abroad believe that since they qualify for the foreign earned income exclusion, meaning that they do not have to pay income tax because they earn less than a $95,100, they do not need to file a U.S. tax return at all. However, just because a taxpayer is living abroad and paying taxes to another government on the earned money, the taxpayer still needs to file an income tax return with the I.R.S.

Some people with foreign pension plans are not aware that these accounts are not tax-exempt under U.S. tax laws, and fail to properly report them -- leading to potential fines and penalties.

Speak with an attorney

Tax laws are complex, and can become confusing because they change so frequently. Even more difficulties can arise with foreign assets. If you would like assistance getting into compliance with unreported offshore accounts, speak with a seasoned tax attorney who can help you avoid civil or criminal penalties.