Year-end tax planning should include voluntary disclosure of any overseas accounts you may have before the IRS forces foreign financial institutions to disclose this information on US citizens. Back in 2011, I wrote about how the IRS forced Switzerland to report information on accounts held by US citizens (IRS on the Prowl). 14,700 citizens turned themselves in under a partial amnesty program to avoid prosecution. Today, new regulations under the Foreign Account Tax Compliance Act (FATCA) required foreign financial institutions to register with the IRS by July 15th. This requirement is the latest step by the IRS to locate unreported income of US citizens.
Under FATCA, foreign institutions will begin withholding tax on certain types of income and security sales on January 1, 2014. The US Treasury estimates as much as $100 billion a year is lost in offshore accounts. The new regulations are designed to recover as much of this lost revenue as possible. Full enforcement of FATCA is scheduled for 2017. Anyone with undisclosed foreign accounts should consider voluntarily reporting information on their accounts before full enforcement begins. Non-compliance could lead to significant penalties and/or criminal charges.
This is a good time to consider whether holding assets overseas provides any strategic benefit. The US dollar has appreciated significantly over the past two years. You could be losing money on foreign assets when they are converted back into US dollars, unless they have kept up with the dollar’s appreciation. This may be a good time to bring those assets back to the United States. There are legal ways to protect assets from taxes using onshore trusts without the currency risk. You should consult with a financial adviser who understands these complex issues and develop a strategy before the IRS comes knocking.