The Foreign Account Tax Compliance Act (“FATCA”) requires foreign financial institutions (“FFI”) that receive payments of U.S. source income to report the identity of U.S. account holders or face a 30 percent withholding tax. Under FATCA, FFIs must establish procedures for identifying and documenting whether newly opened accounts are held by U.S. individuals or entities. Starting July 1, FFIs must implement new individual account opening procedures and begin withholding on certain non-compliant FFIs.

Despite FATCA’s commencement, the IRS will not begin receiving information on U.S. taxpayers with offshore accounts immediately. For example, reports of the identity of U.S. account holders aren’t due to the IRS until 2015 or 2016, depending on the nature of the account.

Although many of FATCA’s requirements do not become effective until later, the law’s commencement marks a very real step towards the possibility of disclosure for taxpayers with unreported offshore accounts. Such disclosure may trigger penalties for taxpayers with foreign accounts worth over $10,000 and who have not filed Reports of Foreign Bank and Financial Accounts (“FBAR”). The penalty for failure to file an FBAR equals the greater of 50% of the account balance at the time of the violation or $100,000, for each FBAR violation. The FBAR form is due June 30 following the calendar year being reported and the IRS has 6 years from that date to assess penalties. Taxpayers who have failed to file FBARs and report foreign account income in the past may participate in a variety of amnesty programs, including the Offshore Voluntary Disclosure Program (“OVDP”) and the Streamlined Filing Compliance Procedure. The new Offshore program is taxpayer friendly.

alliantgroup has been assisting companies become FATCA compliant and regularly helps taxpayers with unreported foreign accounts come into compliance. We welcome the opportunity to help taxpayers navigate the increasingly complex maze of offshore reporting.

Steven Miller is National Director of Tax at alliantgroup.