April 23, 2015 – Wallingford, CT — Wallingford, CT– If you are a US citizen, you are expected to pay your “fair share” of taxes. We’ll set aside what (and who) determines what is “fair” for the moment. What if you are living abroad? If a US citizen is contributing to the economy of another country, living there, buying their goods, or even working there and paying the host country’s taxes, should that citizen pay US taxes in ADDITION to the foreign tax?
Yes, according to the IRS.
Of course, as with any tax issue, this one becomes more complicated the further one travels down the rabbit hole. According to Attorney Anthony E. Parent, of Parent, Parent & Wynn LLP, “The implementation of the Foreign Account Tax Compliance Act (FATCA) has led many US persons living abroad to do one of three things:”
1. Enter in to a voluntary disclosure program.
2. Ignore the program and hope it goes away.
3. Dig oneself in deeper by taking steps to avoid detection.
“In all 3 cases, they most likely do not have the full and accurate picture,” explains Parent. According to a recent survey, nearly half of all foreign investors have CPA’s representing them. On the surface, this seems reasonable. However, according to Parent, over 88% of the errors his firm detects and correct for his clients are from experienced CPA’s. What about the other 12%?
Those are from tax attorneys.
“Attorneys are trained not to lose. While this may seem reasonable and safe, it often places the mindset of a typical tax attorney as an advocate for the IRS, instead of their client,” quipped Parent. “We are all about compliance, but in most cases, we know the rules better than the IRS. We play to win.”
Foreign governments are not always as confident as tax attorney’s like Anthony Parent, according to a recent article in Forbes, FATCA is ramping up worldwide. It requires an annual Form 8938 to be filed with income tax returns for foreign assets meeting a threshold. And foreign banks are sufficiently worried about keeping the IRS happy. The pressure is so great that many foreign banks simply do not want American account holders. Americans abroad can often become pariahs shunned by some foreign banks who are closing accounts and calling in loans.
If you are involved in foreign investing, you’ll probably need to file a Foreign Bank and Financial Account (FBAR) form. The penalties for non-filing of the FBAR are extremely harsh. They range from an automatic penalty of $10,000 to 50% of the balance of the account. It gets worse – if the IRS investigator can prove that you willfully withheld the information from the government, criminal charges can be filed.
The use of a foreign corporation or other instrument to insulate an investor is old news and one the IRS is able to look at more closely now. (see form 5471 for more details). “We’ve seen mistakes by everyone. H&R Block, small law firms, big law firms, small accounting firms and yes, even Big 4 Accounting firms. it is a game that is simply not for everyone,” stated Parent.
The IRS is not simply going after the high profile cases like Girls Gone Wild founder, Joe Francis or Willie Nelson. Anyone with over $10,000 in foreign investment is subject to increased scrutiny.
Working with a firm like Parent’s may not simply save you a significant part of your estate.
They may very well keep you out of jail, too.
Company Name: IRS Medic
Contact Person: Anthony Parent
Country: United States