International currenies - Essay Example

The Foreign Account Tax Compliance Act (FATCA) FACTA was enacted March 18, as part of the Hiring incentives to Restore Employment (HIRE) Act. It is a key component in the federal governments push for increased tax compliance among US tax payers with foreign accounts and assets, as well as foreign financial institutions with accounts owned by US taxpayers. As a result of FATCA (1) the US taxpayer will have to make additional disclosures; (2) the penalties associated with tax noncompliance will increase; and (3) the statute limitations within which the IRS can audit a tax payer will double (Packman and Rivero 44).

Additional disclosure FACTAs new reporting requirements are much broader than the Report of Foreign Bank and Financial Accounts (FBAR). This means that individuals who may not have been subject to FBAR filing obligation may still be subject to the new reporting requirement. The major differences between FACTA and FBAR are: (1) FACTA has a higher asset threshold for disclosure at $50,000; (2) FACTA applies to a wider range of assets; (3) FACTA must be filed as an attachment to an individual tax return unlike FBAR which is filed independently of tax returns with the Treasury Department.

In addition to that, FACTA added a new withholding system that requires foreign financial institutions with substantial US owners to disclose information regarding the US taxpayers. Increased penalties For starters, FACTA favors the IRS with a presumption that it is the obligation of the taxpayer to file her disclosure if she has specified foreign financial assets (Packman and Rivero 45). It also requires shareholders in a passive foreign investment company (PFIC) to file an annual information return disclosing their ownership regardless.

The minimum penalty for failure to submit the required disclosure without reasonable cause is $10,000 which would increase by $10,000, for every 30-days of failure to submit the required disclosure, to a maximum of $50,000. However, there is a 90 day window for one to submit the disclosure after notification from the Treasury Department, before the first $10,000 is levied. FACTA also added to accuracy related penalties. Now there will be a 40% penalty on any portion of an underpayment attributable to a transaction involving an undisclosed financial asset.

Extended statute of limitations Under FACTA, the statute of limitations has been extended from three to six years where a taxpayer omits more than $5,000 of income attributable to asset(s) required to be reported under section 6038D. Conclusion Though FACTA’s reporting requirements for financial institutions do not commence till 2013, the increased IRS statute of limitations and the higher tax penalties that one could incur failure to comply could prove costly. On the other hand, some aspects of FACTA need more clarification.

For example it is still not clear whether the $50,000 threshold applies if the balance of foreign accounts and assets exceeds $50,000 at the end of the tax year or at any time during the tax year (Packman and Rivero 45) Works Cited Packman, Kevin E, and Mauricio D Rivero. “The Foreign Account Tax Compliance Act.” Journal of Accountancy Aug 2010 : 44-48. Print.