The U.S. Treasury Department published the long-awaited Foreign Account Tax Compliance Act (FATCA) rules this week aimed at Americans who dodge U.S. taxes by keeping their assets overseas. U.S. law requires that Americans pay taxes on their global income, not just domestic, and Treasury officials are hoping to sign up more than 50 countries with FATCA agreements and kick-start a dragnet of tax enforcement.
The new rules require foreign financial institutions with $50,000 of any U.S. taxpayer’s assets to report them to the Internal Revenue Service (IRS). Certain retirement funds, life insurance, and other ‘low-risk” financial products held abroad, which are not considered havens for dodging taxes, are exempt from reporting their U.S. account holders’ information to the IRS.
Financial institutions, as well as individuals that refuse to comply with the new law, will be effectively shut out of U.S. securities markets after 2015 and incur big penalties when the first reports are due. The reports will require account holders’ names, addresses, account balances, plus dividends and interest.
The law is the first of its kind globally and has been decried by companies and U.S. ally countries as unilateral, overreaching, and a breach of privacy. FATCA was passed by Congress in March 2010 after a Swiss bank scandal revealed that U.S. taxpayers had hidden millions of dollars overseas from the IRS.