SAN FRANCISCO, CA,– China has now joined the U.S.’ efforts to combat tax evasion by entering into the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on August 27, 2013. The gravamen of this new treaty with China is that the U.S. will be able to easily identify individuals and entities with offshore bank accounts (and other financial interests, such as rental property, businesses, investments, income and assets) in China. This treaty between the U.S. and China combined with the Foreign Account Tax Compliance Act (FATCA, which takes effect in 2014, is a pincer movement that will identify to the Internal Revenue Service (IRS) U.S. citizens and green card holders who are subject to U.S. tax law that have not been reporting their tax and assets to the IRS as is required by American tax law.
By entering into this convention, China, and other nations (56 so far) agree to exchange financial information spontaneously for tax, financial, and other audits. Further, China will actually seize income and assets in China and pay them over to the IRS in exchange for the IRS and other countries do the same in exchange. By way of this treaty, China has bound their banking, financial, and other institutions to the United States’ FATCA law. FATCA requires Foreign Financial Institutions (FFI) to report all of their information on U.S. citizens and permanent residents. FFIs and their employees that do not comply will have their income and assets seized by the U.S. government.
“The previously illegal, but very effective method of tax evasion was hiding income and assets in other countries. This no longer works, and the U.S. government can now find you easily,” said San Francisco tax attorney Steve Moskowitz. “Most of the tax authorities in the world have gotten together to not only exchange information, and to assist the other countries in their tax audits, but to actually physically seize the assets and income in the home country and then pay it over to the U.S. taxing authorities, in exchange for like treatment.”
Compliance with FATCA by Chinese financial institutions will affect many unaware U.S. citizens, green card holders, and other residents with ties to China. It does not matter if one is using a different name, such as a Chinese name, for the account in China and using a different name in the United States as the new FATCA law, long in the making, was able to overcome this common tactic to illegally avoid the tax law.
Individuals who do not report money held in foreign accounts (as well as, a wide variety of other foreign financial income and assets - even certain foreign gifts and insurance,) to the IRS face criminal prosecution and monetary fines that can easily exceed all the income and assets that the person ever had or will have due to the extreme punishments of this law.