Thursday, January 28, 2016

FATCA UPDATE: EASING THE “BURDEN” ON FOREIGN BANKS AND THE LIST OF “BAD” BANKS



FATCA has been on the books since 2010. While the United States is taking the heat for pushing for an Orwellian, virtual, international banking and taxation data base, recall that the overwhelming majority of developed countries are unabashedly “FATCA Friendly.” Just as the U.S. Treasury Department is eager to scoop up data on Americans who have failed to register their foreign accounts with the government (e.g., file an FBAR information return), foreign governments are chafing at the bit to get their hands on the list of their own citizens who are playing the same game as certain U.S. depositors to avoid paying their due share of their respective country’s taxes.

Despite the howl of outrage heard around the world at Big Brother’s attempt to have a book on every American’s foreign financial arrangements, when foreign governments hear the word “FATCA,” they think “mutual” and “reciprocal exchanges of information.”

“We the people” may file law suits, send angry letters to Congress, and form grass roots organizations, but the world’s major financial institutions are spending billions of dollars to get on the FATCA gravy train as they fall over each other scrambling to comply with some of the most complex rules ever to appear in the Regulations under the Internal Revenue Code.

From the beginning, the idea was to implement FATCA in stages so that new accounts would be scrutinized first for telltale signs of an American lurking in the shadows and then preexisting accounts would be examined.

The U.S. and its FATCA Friendly allies are probably years away from full FATCA implementation, so it was no surprise that yet again, the IRS announced recently in Notice 2016-08 that foreign financial institutions will get plenty of extra time to vet their preexisting accounts.

Some Americans who are still sitting on the fence about “coming clean” about their foreign banking have questioned whether they can escape FATCA’s reach because they recently closed all their foreign accounts. They should know that whatever their tolerance for risk and uncertainty, a qualifying preexisting reportable foreign account will not get a free pass if the government has its way. If there is still time left on the six year FBAR statute of limitations, the depositor is still at risk.

Another often over-looked detail for people who are trying to decide whether to comply or just take their chances is the growing and ever changing IRS list of “bad banks” whose lawyers have already been introduced to a friendly U.S. Department of Justice prosecutor who wants to learn all about their past efforts to sign up eager Americans who knew exactly what they were doing when they put substantial sums offshore.

For those whose tax advisors have already told them that their statement of nonwillfulness might be of interest to the writers at Comedy Central, a full-blown OVDP which would have cost a penalty of 27.5% of the taxpayer’s assets subject to the penalty becomes a whopping 50% penalty if the taxpayer’s bank lands on the list before the taxpayer pre-clears for OVDP.

OVDP FAQ 7.2 reminds us that where applicants who are connected to a bank where a public disclosure reveals an ongoing investigation, even if they are cooperating and have signed a Deferred Prosecution Agreement or Non-Prosecution Agreement,  they can no longer get the lower penalty. A current list of the bad banks can be found here.