If you have foreign bank accounts, you are probably already aware of how important it is to report these accounts to the U.S. Government. Under the Bank Secrecy Act (BSA), any United States person (citizen or resident) who has a financial interest in or signature authority over any financial account in a foreign country with an aggregate value of over $10,000 at any time during the calendar year, must file a FinCEN Form 114 Report of Foreign Bank and Financial Accounts or “FBAR”.
You may not be aware that banks and other financial institutions across the world face similar requirements under the Foreign Account Tax Compliance Act (FATCA). Foreign financial institutions are required to report the identity of U.S. account holders and the value of these accounts. Unfortunately, many banks are inaccurately reporting this information. According to a survey conducted by the Aberdeen Group, only 44 percent of foreign financial institutions reported that they accurately disclosed information under FATCA.
What is the cause of these errors?
On its face, it would seem simple for foreign financial institutions to accurately report the identities of accountholders and their values. In practice, however, this may present challenges. In fact, only 19 percent of the institutions have an automated solution in place to collect FATCA data. As FATCA has been in place since July 1, 2014, it appears that banks could do much more to develop effective reporting systems. These reporting requirements are likely to become more complex as other nations introduce similar reporting requirements. Banks that make reporting errors could incur penalties totaling up to 30 percent of their U.S. income. These errors could potentially negatively impact American taxpayers as well.
Individual taxpayers who fail to report overseas accounts face dire consequences
The case of Rowan Seibel is a textbook example of what can go wrong for taxpayers who fail to report foreign assets. Seibel, a Manhattan restaurateur, was sentenced to 30 days in federal prison for failing to report more than $1 million in income to the IRS. Seibel attempted to avail himself of an IRS amnesty, but before doing so, transferred his assets from a Swiss bank account to a Panamanian account. Further, he misled the IRS, stating that he claimed that the money in this account was “stolen or otherwise disappeared.” While Seibel will only serve 30 days in prison, he could have served between 12 and 18 months. The judge may have deviated from the sentencing guidelines because Seibel’s mother established the Swiss account.
International tax issues are exceedingly complex, and require lawyers who fully understand the nuances of these laws. Based in Manhattan, the attorneys of Goldburd McCone LLP provide exceptional representation to taxpayers across the United States and internationally.