New Tax Filing Requirement for US Taxpayers with Foreign Assets
Enacted in 2010, The Foreign Account Tax Compliance Act (FATCA) purpose is to combat tax evasion by holding investments in offshore accounts.
It imposes a new annual reporting requirement for US Tax Payers holding foreign assets with an aggregate value exceeding $50,000. International banking firms, or Foreign financial institutions (“FFIs”), will also be required to report certain information directly to the IRS on its account holders.
In a special agreement with the IRS, participating FFIs will be obligated to undertake certain identification and due diligence procedures with respect to its accountholders, report annually to the IRS on its accountholders who are U.S. persons or foreign entities with substantial U.S. ownership, Withhold 30 percent of any payments of U.S. source income, as well as gross proceeds from the sale of securities that generate U.S. source income, made to (a) non-participating FFIs, (b) individual accountholders failing to provide sufficient information to determine whether or not they are a U.S. person, or (c) foreign entity accountholders failing to provide sufficient information about the identity of its substantial U.S. owners.
We are most concerned with those not informed of this new filing requirement. Failure to report foreign financial assets will result in a penalty of $10,000 (and a penalty up to $50,000 for continued failure after IRS notification). In addition, underpayments of tax attributable to non-disclosed foreign financial assets will be subject to an additional underpayment penalty of 40 percent.
Many details of the new reporting and withholding requirements pertaining to FFIs must be developed through Treasury regulations that are expected to be proposed by December 31, 2011.
Tax preparation and planning is an important component of the wealth management process. We are here to help. Contact us to discuss your FATCA filing requirements and how it may affect you for the 2011 tax year.
Disclosure
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any company names noted herein are for educational purposes only.
All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.
Investing in securities in emerging markets involves special risks due to specific factors such as increased volatility, currency fluctuations and differences in auditing and other financial standards. Securities in emerging markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
An index is a statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value. An investment cannot be made directly into an index.
Investing in fixed income securities involves credit and interest rate risk. When interest rates rise, bond prices generally fall. Investing in commodities may involve greater volatility and is not suitable for all investors. Investing in a non-diversified fund that concentrates holdings into fewer securities or industries involves greater risk than investing in a more diversified fund. The equity securities of small companies may not be traded as often as equity securities of large companies so they may be difficult or impossible to sell. Neither diversification nor asset allocation assure a profit or protect against a loss in declining markets. Past performance is not an indicator of future results.
Financial Planning offered through Reason Financial, a state Registered Investment Advisor. Investment advice offered through Merit Financial Group, LLC an SEC Registered Investment Advisor. Merit Financial Group and Reason Financial are separate entities. Tax related services offered through Reason Tax Group. Reason Tax Group is a separate legal entity and not affiliated with Merit Financial Group, LLC. Sean P. Storck CA Insurance Lic#OF25995 and Steven W. Pollock CA Insurance Lic#OE98073
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