Are You Affected By FACTA and International Tax Compliance?
Andrew Aldridge, Tax Director at US Tax & Financial Services, recently provided expert comment for an article in The Times, which highlighted how the IRS is targeting US persons in the UK under new rules to combat tax evasion.
The article in The Times (Saturday 15th March 2014) highlighted how The IRS is on the trail of thousands of Britons who are US persons and are liable for US income tax. The US is one of only a few places in the world to tax by citizenship rather than residency.
Since the birth of Foreign Account Tax Compliance Act (FATCA) the US has been cracking the whip with regards to international tax evasion. Many American persons who aren’t aware of these rules being enforced will now be required to file tax returns on worldwide income, every year.
Who is a ‘US Person’?
The article raises the issue of clarity as to who is a US person and is liable to file returns to the IRS. It examines the different scenarios which can be applied, for example if you were born in the US but never earned income there, you’re still liable. If you have never been to the US but have a parent with US citizenship you may also still be liable, while those who have undertaken employment in the US and received a Green Card to work and reside are also liable to pay tax.
From next year financial institutions, including wealth managers, insurers and banks will be required to identify and report clients who are US persons and most are already scanning their databases to establish whether reporting is required.
The news article also explains how the IRS is encouraging individuals to come forward and take part in their Offshore Voluntary Disclosure Program (OVDP).
Andrew said: “Under an Offshore Disclosure Program you are required to produce eight years of income tax returns”
He also noted that there were potential penalties for failure to file various informational returns of $10,000 a year per return or the taxpayer could agree to a one-off penalty of 27.5 per cent of net worth. The article also points out that denouncing US citizenship is no escape from tax obligations, as the IRS will require an ‘exit tax’ for doing so.
If you’re an individual or a wealth manager who believes you may be affected by the information in this article, or if you know you are liable to pay US tax and need advice on the next steps to take, find out more about our range of tax planning and consultancy services here or contact us directly for advice.