DETROIT —  With the US Federal debt crisis persisting and the government starved for income, all should be ready for some heavy duty tax collection. “Exhibit 1” to this new era of vigorous government tax enforcement is The Foreign Account Tax Compliance Act, or “FATCA”. This federal law, enacted in 2010 is, expected to be ratified by most major countries by June of 2013. The goal of FATCA is to identify and try and deter offshore tax evasion mechanisms of US citizens, by implementing a mandatory reporting of certain offshore accounts held by those citizens.  

FATCA will impact any US taxpayer that had or has over $50,000 in accounts and investments in offshore accounts after March 18, 2010. Under FATCA, U.S taxpayers holding financial assets outside of the U.S, as well as foreign financial institutions, or “FFI’s” must report the assets to the IRS. Therefore, if an individual fails to report they bear the risk that an FFI directly reporting to the IRS information about financial accounts held by that tax payer or by any foreign entity that that taxpayer has a significant ownership interest.  Taxpayers must now file Form 8938 with their annual tax return if they meet the reporting requirements. 

Those taxpayers that fail to report bear the burden of paying a $10,000 fine, which may be increased to up to $50,000 if it is an ongoing offense, as well as a 40% penalty on unpaid taxes if they are paid after the IRS contacts them regarding nonpayment. Even worst is the possible criminal prosecution that may follow.

As of now, there are at least 50 countries worldwide that have indicated they will adopt laws and/or regulations that will require their banks to comply with FATCA, with the list of countries expected to grow rapidly (See Chart). Lebanon and Israel are just two examples of countries that will comply with the law, which is expected to have a widespread impact on expatriates from those and other countries. 

Why are all these banks and countries stepping in line? The answer is simple- FFIs that fail to comply with the FATCA will be fined, blacklisted, and banned from trading in the US, the world’s largest market. Lebanon’s Central Bank Governor Riad Salameh has said that this law will only affect U.S. citizens, affirming that the Lebanese Banks intend to fully comply with the Act. With Lebanon already willing to commit, there is reason to believe that other Arab countries will follow suit.

For many, proper legal advice, planning and interfacing with the IRS will be crucial to avoid severe financial and even criminal penalties. The Meridian Law Group is ready to help you start planning for FATCA compliance, and you can contact us at the number below to set up an initial consultation.  

Tarek M. Baydoun is an attorney and counselor at The Meridian Law Group, of counsel to Allen Brothers, PLLC, and can be reached at his office phone at 313.962.7777 or by email at tbaydoun@allenbrotherspllc.com