S fines loom for offshore account holders
>By Kevin Allison in New York
>Published: June 29 2005 22:04 | Last updated: June 29 2005 22:04
>>
US expatriates and many foreigners living in the US risk penalties of up to $10,000 if they fail to report details of overseas bank and financial accounts to the US Treasury by Thursday.
Any “US person” who held more than $10,000 (€8,269, £5,532) offshore in 2004 whether in bank accounts, stock funds, trusts and other investment accounts is expected to have completed an obscure form known as a TDF 90-22.1.
Taxpayers who fail to comply face a $10,000 fine and a maximum civil penalty of $100,000 or 50 per cent of the value of the offshore account, experts warn.
Accountants in the US and abroad say they have been working with clients but admit that thousands could be caught out because they remain unaware of their obligation.
The requirement applies to US citizens living at home and abroad as well as foreign nationals who live in the US and are subject to US tax. Anyone with signature authority over an offshore account, as well as those with a direct financial interest in the account, can be held responsible.
“There is obviously a lot of non-compliance out there,” said Clarissa Dougherty, director with PwC’s human resources services group in Los Angeles.
The push to increase reporting of overseas accounts coincides with a broader crackdown on offshore tax shelters by US tax authorities. A growing number of people are moving overseas to pursue international careers or academic studies.
Taxpayers have long been required to provide information on their offshore accounts to the US government but lax enforcement has led many to flout or to keep themselves ignorant of the law, accountants said. Thursday’s filing deadline is the first since Congress considerably increased the penalties for non-compliance in a little-noticed provision of the 2004 American Jobs Creation Act. It also eliminated the requirement that a violation be wilful in order to incur a penalty.
“The worry is that ‘non-wilful' could extend to filing late,” said Anna Sewell, a tax consultant with Ernst & Young in London. Penalities may be waived if taxpayers can show “reasonable cause”.
The form's importance is obscured by the fact that it is issued by the Treasury, not the Internal Revenue Service, and is therefore not required when completing a tax return. Its filing deadline and mailing address are different from those of IRS forms.
Accountants say those most at risk of falling foul of filing rules are US students studying overseas, foreign nationals who live in the US and who have failed to inform their bank or stockbrokers of a change in address, and those who are US citizens by birth but who have spent all or most of their life abroad and may not realise they have US tax obligations.
The US is unique among industrialised nations in that citizens are subject to US tax regardless of whether they live in the US or not. Only Eritrea and the Philippines have similar systems.
“I have been working day and night filling out these forms and half the people out there don't even know they need them,” said Liz Zitzow, a London-based accountant who specialises in preparing tax returns for US expatriates.
