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New law provides IRS access to overseas accounts

On July 1, the Internal Revenue Service will get a better idea of funds placed in American held accounts in foreign banks and institutions. In short, reporting money and investments abroad will not rely solely on the honor system anymore. Instead, foreign financial institutions will provide access or be charged a 30 percent withholding tax on payments that can be withheld.

The law allows for data acquisition by the U.S. on foreign accounts held by 80 governments and 77,000 FFIs worldwide. According to a former Treasury Department international counsel, the size of this endeavor has not been attempted previously, and hopes are it may happen seamlessly.

For many years, the IRS has been unable to obtain substantial information about overseas accounts. U.S. citizens are taxed on worldwide income. Until now, there was little more the U.S. could do but accept that people were disclosing their income honestly. The Foreign Account Tax Compliance Act gives them the ability to do much more.

Under the law, U.S. banks as well as companies making payments to FFIs must withhold 30 percent if the FFI is not sharing information with the IRS. This includes dividends and interest. In 2013, almost 3000 Americans gave up their U.S. citizenship, an all-time high. In 2015, the IRS may begin investigations into overseas tax evasion.

Changing tax laws, such as FATCA, may be of concern to some Americans who have foreign assets. The laws may be difficult to understand, and consulting with an attorney who may offer guidance and insight into the options a taxpayer has may be beneficial. An attorney may be able to review an individual's income, stock portfolio and other assets, as well as claims made by the IRS, to determine their status and advise them of their options.

Source: Bloomberg, "Offshore Tax Crackdown Opens With 30% Penalties for Banks", Richard Rubin, June 30, 2014

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