Xenophobia. I have always loved that word. Just saying it makes me feel smarter. My handy Webster’s dictionary tells me it means “fear or hatred of strangers or foreigners.” I know we are taught not to take candy from strangers. But hey, strangers can be fun, like meeting new people at a party. I do not know whether the IRS knows what the word means, but judging from the 2010 Foreign Account Tax Compliance Act (FATCA) I think the IRS is Xenophobic.
First, effective July 1, 2014, a US entity that makes virtually ANY type of payment to a “foreign financial institution” (FFI) will be required to withhold AND REMIT 30% of the payment to the IRS, unless the FFI is documented as exempt from the requirement. How does the FFI become exempt? I am glad you asked. By identifying for the IRS all of its account holders who are US taxpayers. So, either you withhold and remit to the IRS effectively disclosing your relationship with the FFI, or you first confirm that the IRS already knows about it. The IRS may not be sitting at our kitchen tables yet … but that doesn’t mean they can’t smell what’s cooking.
Then there is the Bank Secrecy Act (BSA). The BSA requires that US taxpayers file an annual report with Uncle Sam of any foreign financial accounts with an aggregate value of more than $10,000 at any time during the year. These reports are commonly called “FBAR” (Report of Foreign Bank and Financial Accounts). An FBAR must be filed electronically each year by June 30 by each US person who has a financial interest in, or signature or other authority over, a bank, securities or other financial account in a foreign country, which exceeds $10,000 in value at any time during the calendar year. So what is the penalty for willfully failing to file an FBAR? I am glad you asked:
The willful failure to file a FBAR is a FELONY, punishable by a fine of not more than $250,000 or imprisonment for not more than five years, or both.
No, that foregoing sentence is not a typo. If you have signature authority on a foreign bank account with a balance that exceeds $10,000 in value for even one day during the calendar and you willfully fail to file an FBAR you are committing a felony.
There are many other civil and criminal penalties relating to the failure to disclose foreign bank accounts … but this should be enough to catch your attention.
Xenophobia. Now don’t you feel smarter just saying it!