The idea of U.S. citizens having offshore accounts is highly questionable. Since 2009, tens of thousands of taxpayers have admitted to having undeclared accounts and paid stiff penalties. More than 80 have gone to prison. In September 2013, the founder of Beanie Babies, Ty Warner, paid a $53.6 million penalty. A far-reaching provision of the 2010 Foreign Account Tax Compliance Act (Fatca) will go into effect in July of 2014. The provision requires foreign financial institutions to report information about their U.S. account holders to the IRS.
Failure to comply with Fatca means a foreign financial firm could lose access to U.S. markets; individuals who are not known by the U.S. for having foreign holdings could face a 30% automatic dividend and interest payment withholding rate. Those hit with the automatic withholding would either accept the 30% “tax” or file a U.S. return, note the account, and claim a partial or full refund. Those deemed “willful evaders” by the IRS could be hit with penalties many times the value of the entire foreign account; individuals could also face jail time. One of Fatca’s main objectives is to clamp down on offshore trusts that conceal assets from the IRS.