Expat Americans know shockingly little about laws that require them to report their overseas savings and investments.
The Foreign Account Tax Compliance Act (FATCA) was introduced by former President Barack Obama in 2010, and has slowly cranked up to capture data from tax authorities in more than 100 countries and from more than 310,000 financial institutions worldwide.
But despite publicity and protest campaigns against the law by expat groups, a fifth of American expats know little or nothing about the rules.
Failing to file the right tax forms to the Internal Revenue Service declaring offshore accounts and holdings can lead to a criminal prosecution, fines of up to $100,000 and seizure of half of the balance of a foreign account.
The findings came from a study by US tax consultancy Greenback Expat Tax.
Declaring offshore cash
The company asked 3,800 American expats about FATCA.
Although FATCA demands foreign financial institutions files data with the IRS about their American customers every year, American taxpayers, including expats, must declare their offshore financial activity alongside their tax filing.
These include an FBAR – a report of foreign bank and financial accounts – and a Form 8938. The 8938 is for expats with assets held offshore totalling more than $200,000 or exceeding $300,000 during the tax year.
The IRS then cross-checks the information on these forms with data from foreign tax authorities to ensure Americans are paying the correct amount of tax.
So far, FATCA has led to the IRS raising more than $10 billion unpaid tax.
Two thirds call for tax revolution
Taxpayers can disclose their hidden offshore assets to the IRS on favourable terms until September 28, 2018.
From October, the Offshore Voluntary Disclosure Scheme ends, and the IRS is likely to assume only hardcore tax avoiders have failed to declare their wealth in the years the scheme has been running.
The survey also revealed 66% of American expats believe the government should not ask them to pay taxes from outside the US.
Another 58% called for the repeal of citizen-based taxation, while 20% felt they needed more official help in filing tax returns.
Around 7% of expats – which is 500,000 taxpayers – confessed they were behind with their tax filings.
Great supporting information here, thank you so much. I am a widow living in Adelaide Australia now and have been concerned about the effects FACTA has been having on my investment income. But I recently found some good news written by a nice young man called Dan Hadley. It’s about FACTA being repealed. It looks like FACTA is well on the way to being repealed, there is a lot of support from various members of congress and there have been some legal repercussions due to privacy legislation in various countries.