Foreign Taxpayers – The IRS is telling on you!

Over the past several years, we have worked with a large number of Americans living abroad who needed to get into tax compliance with the IRS.  The number of Americans with an urgency to get into compliance has multiplied exponentially since the introduction of the Foreign Account Tax Compliance Act (FATCA).

As you may know, FATCA requires that foreign banks send U.S. account holders’ account information, including interest income, to the IRS.  Many Americans who had not been reporting these accounts began to panic when they fully understood the penalties for non-compliance. They knew that if they didn’t disclose their foreign accounts and associated income, their foreign bank would send the information to the IRS.  Once the IRS receives the data from the foreign banks, they cross-reference it with the taxpayers’ tax returns and Report of Foreign Bank and Financial Accounts (FBARs).If the account and/or associated income was not reported by the taxpayer, the IRS has all they need to audit the taxpayer and assess tax, interest, and/or penalties, or criminally prosecute if appropriate.

Recently, a client’s matter reminded me that it is not only foreign banks that report U.S. account holders’ information to the IRS, but that the U.S. also provides a number of countries information regarding their residents’ U.S. interest income. A client, we will call Sam, was reporting his U.S. income on his U.S. return and his German income on his German tax return. (Germany is not actually the country, but it will be for this scenario). Because of this, Sam wasn’t compliant in either the U.S. or in Germany.  He came to us to assist with correcting his U.S. tax compliance issue because he knew that it was only a matter of time before the IRS would catch him through FATCA, and he hoped to beat them to the punch.

Our company offers U.S. tax services and were more than happy to help him out with his IRS compliance issues, but Sam also had German tax issues.  We told Sam that he needed to hire a German tax consultant to correct his German tax filings.

Sam asked “Why? How is Germany going to find out about my U.S. interest income?” We had to break the news that the U.S. also reports U.S. interest income earned by residents of certain foreign countries to those countries—including Germany.  The U.S. automatically exchanges this information, which means the foreign country does not have to request the information, the U.S. sends it without a request.  In Sam’s case, Germany would have all of the information it needs from the U.S. to uncover his noncompliance.

Below is a list of “cooperating” countries; ones who are automatically exchanging information.  If you are a resident of any of these countries and have unreported interest income in the U.S., like Sam, you better get in compliance. There is a good chance your government may already know about your U.S. income.

1. 1. Antigua & Barbuda

1. 1. Aruba

1. 1. Australia

1. 1. Austria

1. 1. Azerbaijan

1. 1. Bangladesh

1. 1. Barbados

1. 1. Belgium

1. 1. Bermuda

1. 1. Brazil

1. 1. The British Virgin Islands

1. 1. Bulgaria

1. 1. Canada

1. 1. Cayman Islands

1. 1. China

1. 1. Colombia

1. 1. Costa Rica

1. 1. Croatia

1. 1. Curacao

1. 1. Cyprus

1. 1. Czech Republic

1. 1. Denmark

1. 1. Dominica

1. 1. Dominican Republic

1. 1. Egypt

1. 1. Estonia

1. 1. Finland

1. 1. France

1. 1. Germany

1. 1. Gibraltar

1. 1. Greece

1. 1. Grenada

1. 1. Guernsey

1. 1. Guyana

1. 1. Honduras

1. 1. Hong Kong

1. 1. Hungary

1. 1. Iceland

1. 1. India

1. 1. Indonesia

1. 1. Ireland

1. 1. Isle of Man

1. 1. Israel

1. 1. Jamaica

1. 1. Jersey

1. 1. Korea, Republic of

1. 1. Latvia

1. 1. Liechtenstein

1. 1. Lithuania

1. 1. Luxembourg

1. 1. Malta

1. 1. Mauritius

1. 1. Mexico

1. 1. Netherlands

1. 1. New Zealand

1. 1. Norway

1. 1. Poland

1. 1. Saint Lucia

1. 1. Slovak Republic

1. 1. Slovenia

1. 1. South Africa

1. 1. Spain

1. 1. Sweden

1. United Kingdom