The recent meeting of the G-20 countries, produced an agreement titled “Exchange of information: Convention on Mutual Administrative Assistance in Tax Matters”. One of the key provisions calls for a global exchange of banking information.
” Calling on all other jurisdictions to join us by the earliest possible date, we are committed to automatic exchange of information as the new global standard, which must ensure confidentiality and the proper use of information exchanged, and we fully support the OECD work with G20 countries aimed at presenting such a new single global standard for automatic exchange of information by February 2014 and to finalizing technical modalities of effective automatic exchange by mid-2014. In parallel, we expect to begin to exchange information automatically on tax matters among G20 members by the end of 2015?
The purpose of the information exchange is to bring to the attention of all national taxing authorities the previously unreported accounts and minimize the further use of such accounts in the future. The ultimate objectives include income tax collection, prevention of money laundering and tax evasion and tracking of terrorist funds and other illicit activities. The agreement is likely to mirror the Foreign Account Tax Compliance Act (FATCA) enacted by the U.S. and now being implemented. The full roll-out of FATCA will not occur until 2015, but the effects of FATCA are now being felt. The U.S. enforcement of Bank Secrecy Act(BSA) rules, which govern reporting of offshore accounts by requiring the filing of an annual report know as an FBAR has been increasingly ramped up. In addition to criminal prosecutions of foreign financial institutions and their employees, recalcitrant U.S. taxpayers (meaning those who have not come forward) will likely find themselves subject to severe civil penalties.
Penalties for “willfully” failing to file FBAR’s include prosecution, and civil fines of 50% of the high account balances per year. The IRS is taking the position that the statute of limitations does not run on unfiled information returns. The IRS position would mean that even if the statute for willful/intentional conduct was applied the account would be depleted in two years, let a lone three or six. The Department of Justice (DOJ) and IRS are taking the position that anyone who does come forward and is discovered, will be treated as willful.
The positions of the DOJ and IRS should motivate most taxpayers who are on the fence about disclosure. The prospect of discovery is increasing daily and the argument that you can hide in a sea of too many to reach is foolish. Events occur everyday that give rise to information about offshore accounts. Examples are: Taxpayers die and their representatives must disclose asset; couples divorce and must account for marital and non-marital property; businesses form, dissolve and have disgruntled owners and creditors seeking assets and individuals emigrate, choosing to leave their country of origin for any number of reasons and come to the U.S. For these reasons and many more, hiding ones head like and Ostrich is no solution. In simple terms, while the perception of discovery is low, the result of discovery are catastrophic so why not explore methods of coming forward, such as the Offshore Voluntary Disclosure Program, (OVDP) where there is certainty offered, at a price.
Fiduciaries, are at particular risk for they are under pressure from the beneficiaries and face personal liability for failure to come forward once unreported offshore assets are discovered. The obligations that fiduciaries face compels prudence. The prospect of the imposition of penalties for willful behavior should also motivate all taxpayers with undisclosed offshore accounts to carefully weight their options.