US expats worldwide are receiving letters from their banks demanding they prove their identity and disclose their tax details.
This chasing down of the 6 million or so US expats was triggered by the start of Foreign Account Tax Compliance Act (FATCA) reporting earlier this year.
After five years of huffing, puffing and false starts, the Internal Revenue Service (IRS) has finally got their FATCA act in some sort of order and is eagerly awaiting the first batches of data from foreign banks.
FATCA obliges foreign financial institutions to tell the IRS about any accounts controlled by American tax resident customers with a balance of more than $50,000.
The threshold is more generous for expats – $200,000.
Banks are targetting their American customers after a surge of penalty action against Swiss banks in recent years and others do not want to follow their lead.
The IRS offers American taxpayers an offshore voluntary disclosure facility. This allows Americans to own up to hiding the cash and assets overseas in return for reduced penalties of 27.5% of tax due.
However, if the bank where the US expat has their account is blacklisted because of legal action, the penalty is hiked up to 50%.
The list includes some big names:
- Credit Suisse
- Wegelin & Co
- Liechtensteinische Landesbank AG
- Zurcher Kantonalbank
- CIBC First Caribbean International Bank
- Stanford International Bank,
- HSBC India
- Bank Leumi
To Americans, it must seem the whole financial world has ganged up against them as this list is just the tip of the iceberg.
Tax information network
At least 100 Swiss banks have agreed to hand over account information to the IRS and other tax authorities, like HM Revenue & Customs (HMRC) and those in France, Germany and Austria.
FATCA is a network of international banks, tax authorities and governments. For most governments, the IRS has agreed to pass financial information about their nationals with bank and investing accounts in the US in return for the same information about US nationals in their jurisdictions.
US taxpayers do not have to take any action other than declare their offshore assets on their annual tax returns.
The IRS then checks this against data held on file from overseas to sniff out taxpayers who might be misdeclaring their true earnings in order to avoid tax.