Offshore Accounts Initiatives by the IRS

Last updated on March 13, 2013

With the introduction of the Foreign Account Tax and Compliance Act (FATCA), the IRS has made a strong move to recover hidden money in offshore accounts. Under FATCA, U.S. taxpayers with specified foreign financial assets that exceed a certain threshold are required to report those assets to the IRS.

To enforce compliance, the IRS has made agreements with various countries to share bank account information of U.S. citizens. The IRS has also encouraged taxpayers with offshore accounts to disclose their assets overseas voluntarily, including those with dual citizenship. In 2012, the IRS began an initiative to help U.S. citizens residing abroad to file their tax returns and fulfill any amount they owe in back taxes.

It is common knowledge that many wealthy taxpayers keep their income hidden overseas to evade taxes. Recently the IRS received as much as $5.5 billion in unpaid taxes from offshore accounts. Countries, such as Switzerland, Israel, India, Hong Kong, and Singapore are used by the rich to keep their money untaxed.

With FATCA, it will become difficult for U.S. citizens to use offshore accounts to evade taxes. Under FATCA, foreign institutions, such as banks will become liable to share the names of their customers, and their bank information with the U.S. authorities on demand. The act will take effect in 2014.

With tax evasion a major cause of the loss of billions of dollars annually to the U.S. Treasury, FATCA might help recover lost money and improve tax compliance among the rich.