Penalty Threat
“The United States wishes to ensure that all income earned worldwide by U.S. taxpayers on accounts held abroad can be taxed by the United States,” the Swiss government said on April 10.
Since 2011, Americans, who disclose their non-U.S. bank accounts to the IRS, must file the more expansive 8938 form that asks for all foreign financial assets, including insurance contracts, loans and shareholdings in non-U.S. companies.
Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.
The implementation of Fatca from July next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax-evasion dispute with the U.S. Whistle-blower Bradley Birkenfeld was sentenced to 40 months in a U.S. prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS AG.
Compliance Costs
The additional compliance costs for companies to ensure that Americans they hire are filing the correct U.S. tax returns and asset-declaration forms are at least $5,000 per person, said Ledvina.
For individuals, the costs are also rising. Getting a mortgage or acquiring life insurance is becoming almost impossible for American citizens living overseas, Ledvina said.
“With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad,” the tax lawyer said. “Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad.”