There are few in the United States who yet realize that the Foreign Account Tax Compliant Act (FATCA) will make dealings with their local financial institutions much bigger problems than they are already.
Not too many years ago, banks would hand out toasters, electric coffee makers and such things to get people to open accounts.
It has all changed.
Now, banks and other institutions are mandated by multiple layers of laws and regulations that basically deem anybody trying to open a financial account to be some sort of crook.
Unless you can prove innocence, a financial institution is not allowed to open an account.
Don’t you feel full of gratitude when a financial institution finds you worthy enough that they will take your money?
It’s about to get worse.
It seems that Congress is primarily concerned about getting more tax money.
In particular, Congress is convinced that enormous amounts of unpaid taxes can be gotten by forcing U.S. — and some foreign — holders of accounts with non-U.S. financial institutions to pay on their secret accounts.
Hence, Congress passed FATCA.
Under FATCA, every foreign institution, as specially defined to include a long list of businesses that few would think are financial institutions, comes under the control of the U.S. Treasury’s IRS.
As part of the enforcement mechanism, the Treasury will enter into agreements with various countries, individually or on a group basis, to get excruciatingly detailed information on anyone who may have an “account” that could be construed as taxable under the U.S. income tax law.
The Treasury claims these agreements are not treaties, so no Senate approval is required.
Why is the impact of FATCA important to you?
It is because a number of countries want these inter-government information and enforcement agreements to be reciprocal.
If the United States thinks that U.S. persons are avoiding U.S. tax by holding foreign financial accounts, then other countries reason their own taxpayers are avoiding tax in their country by holding accounts in the United States.
The United States is going to FATCA other countries, and some of the other countries are going to FATCA the United States.
Depending on the reciprocity terms of the mutual FATCA agreement, local U.S. financial institutions would be required to provide the detailed information so that foreign country account holders in the United States must be reported to the foreign country.
In order to do that, the institutions that are now deemed “financial institutions” (including, for example, such things as insurance companies, jewelry stores and check-cashing facilities) would need to know everything about every account holder and not just the obvious foreign ones.
If you are a financial account holder even with no foreign connection, then you are still included in the FATCA information-gathering regime.
If an account is in a company name, then all the information on the shareholders and members must be obtained. If the shares or membership interests are in trust, then the grantor and beneficiaries of the trust must be disclosed. And so on.
As with everything else involving U.S. income tax, the complexity of FATCA and its consequences are, to vastly understate it, bad.
Some foreigners may quickly see that to avoid information being reported, they will close their U.S. financial accounts whether held directly or indirectly.
Foreign financial institutions may find it easier to avoid having dealings with U.S. individuals or companies. No doubt more than a few will sell off any holdings of U.S. investments that would involve generating tax withholding.
Individually, Americans have largely ignored the impact that FATCA has on foreign countries. Many Americans think the foreigners have it coming. Besides, they don’t think it has anything to do with them.
That one-way thinking is going to change. Some countries are thinking that what is good for the goose should be good for the gander.
FATCA reciprocal agreements, depending on the terms of agreement, will require the IRS to enforce against American financial institutions the same horrific reporting system that other countries are required to employ against their own financial institutions to report to the United States.
Americans are about to find out for themselves the horror of being subject to the tax information-reporting regime they thought was only going to happen in foreign countries to Americans with foreign accounts.
All I can say is two things — surprise, and get yourself a lawyer who knows all about FATCA.
© 2013 Moneynews. All rights reserved.