Foreign financial institutions (FFIs) without an adequate reporting strategy could risk noncompliance with IRS regulations regarding offshore accounts. Non-domestic accounts subject to the Foreign Account Tax Compliance Act (FATCA) must be reported by financial institutions as well as by the account holders themselves under the tax code. Not adequately informing the IRS – either directly or indirectly – about the presence of foreign assets held by U.S. taxpayers could lead to steep penalties, both for the account holder and the FFI itself. In particular, the FFI could face a punitive withholding tax that may far outweigh the cost of any single foreign account.
Evolution is key
Even FFIs with an established reporting structure must still take steps to assure compliance as FATCA regulations continue to evolve. As evolution occurs within the regulations, it must trickle down to reporting. Failing to continuously monitor changes in the law, and to respond accordingly, will result in noncompliance, penalties and perhaps even criminal charges for tax evasion levied against the FFI itself or individuals working there.
FFIs – and domestic financial institutions as well – big and small must continuously monitor their own internal FATCA reporting structure and stay abreast of changes in the law in order to remain compliant. This can prove overwhelming for even the biggest firms with in-house compliance departments, and can bring reporting operations at small institutions to a virtual standstill.
If you, as a FATCA account holder or a financial institution, have questions about FATCA compliance, it is best to act quickly to ensure your reporting structure is sufficient to adhere to IRS regulations. Working with a tax planner and a skilled tax attorney will help you create a compliance scheme that meets your needs and complies with relevant reporting regulations.