In 2010 the US passed the Foreign Assets Tax Compliance Act (FATCA). It requires both US citizens and Green Card holders to report financial information to the IRS. Wilful evasion by US taxpayers could result in severe consequences including penalties, account forfeitures, criminal prosecution.
Do not think you can evade FATCA by keeping quiet. It applies to foreign financial institutions so your bank is also obliged to report information on your account to the IRS. The consequences for the bank if it doesn’t, includes loss of access to the US market. So, you can bet that the IRS probably knows about your account, which you are not reporting because the bank is. One day, the dreaded notice will come …
Remember that the US taxes its citizens on their worldwide income, no matter where you are, one of the few major jurisdictions to do so. That means that you are caught if you were born in the US or if your parents are US citizens and in either case, you never renounced your US citizenship. This could also apply to your children when they become adults and therefore responsible for their own reporting, even if they have never even been to the US.
There are over 10 types of returns you may have to make depending on what you own and what income you receive.
You are required to report foreign income including, but not limited to wages, interest and dividends, gains from sales of assets, rental property income, royalties, farming income, pension, pension contributions, and even gambling income. You also have to report passive investment income such as mutual funds, even if held within an ISA (which is not taxable in the UK). Beneficiaries of trusts also have to report their trust income. Remember you can claim a foreign tax credit on income taxed by the UK or another foreign country.
You also have Foreign Bank Account Reporting (FBAR) obligations. It applies to foreign bank accounts that you own or have a signature over. It is an information form only and does not involve any tax, although the reporting may lead to tax having to be paid. There are stiff penalties for being late which include $10,000 and in some cases, 50% of the highest balance in the bank account for each year. The penalties apply to each open year, which means that the penalties could exceed the amount in the account. Criminal penalties for willful default are $500,000 and/or up to 10 years in prison.
So what do you do if you are not compliant? No! Don’t rush off to file. Get advice before you do. There are different ways to get compliant and it is best to get professional advice to ensure you choose the best way to make yourself compliant as some voluntary filing options are better than others for you.
If you are a UK resident US citizen or Green Card holder, you need to get in touch as soon as possible so we can help you get the best advice for getting compliant. If you have never filed an FBAR, don’t think you can hide forever. Uncle Sam wants you! Best to get compliant now or you could pay a heavy price for your non-compliance.