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The Tax Practice of IIT Chicago-Kent College of Law
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foreign account disclosures, Chicago tax law attorneyThe IRS recently finished a four-year rollout of a law called FATCA: the Foreign Account Tax Compliance Act. Explicitly, it says "Americans being taxed on their total international income, all financial institutions are henceforth required to annually turn over all data they have on any American using their service. Failure to do so will lock an institution out of all American markets unless they instead choose to withhold 30 percent of that American's deposits for tax purposes." In other words, for global financial institutions, FATCA is one tax controversy you definitely want to avoid at all costs.

FATCA has had a transformative effect on the nature of international finance, creating a level of transparency almost unheard of previously. After Credit Suisse pled guilty to willful FATCA violations and paid a $2.6 billion fine, the rest of the banking world pretty much scrambled to line up and hand the IRS any and all financial data they had on Americans. It's been an extremely effective tool for the IRS to prevent individuals and corporations from hiding money overseas.

Personal Impact

Of course, that's the big picture. To an individual person, the net effect is there is now a very painful cost-benefit analysis to be performed if you have any meaningful amount of unreported cash or accounts offshore. Because almost every financial institution in the world is complying with FATCA, it's essentially only a matter of time before you're caught and penalties are assessed.

Fortunately, the IRS has also restarted the Offshore Voluntary Disclosure Program (OVDP), a program that allows both individuals and corporate entities to voluntarily report money held overseas in exchange for a (significant) reduction in penalties assessed in response to the discovery of those funds. Don't think the information they get from FATCA means you can skip filing your Foreign Bank and Accounts Report (FBAR); it's still a vital part of the reporting process along with several other forms.

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