This issue is a primer on recent IRS programs focused on foreign financial assets of U.S. citizens and green card holders. Thanks to Ron Drucker for this timely piece.
The media has been abuzz regarding programs the United States (U.S.) Internal Revenue Service (IRS) has launched aimed at foreign financial assets of U.S. citizens and green card holders. On July 1, 2014, these programs went into effect and information sharing will now occur between foreign financial institutions and the IRS. If you are an international family business consultant, this should be of the highest importance to you and your clients. In this short blog, I’ll explain why.
U.S. citizens and green card holders are subject to U.S. income tax, regardless of where they reside and whether or not they have dual or multi-citizenship. Under the U.S. tax system, tax is assessed on an individual’s global income. U.S. taxpayers are also required to disclose annually whether they have a financial interest in, or signature authority over, foreign financial accounts. Additionally, other informational forms are required to be filed annually that disclose foreign-related information and potential tax obligations. The potential penalties associated with non-compliance of these requirements are significant.
Now that this program has begun, the IRS has information available to seek out non-compliant taxpayers. Some of your clients may be requested to fill out IRS forms that are required as part of the foreign financial institutions’ compliance with the program. In addition, withholding tax may be taken out of some of their investment earnings from the financial institutions.
By asking questions, you may determine if clients have a potential issue that needs to be addressed and resolved. The IRS recently released some additional programs where taxpayers can voluntarily disclose their non-compliance and receive advantageous treatment in regard to the significant penalties that could be applicable. By clicking here, you can see an email my firm sent to its clients outlining these taxpayer-friendly programs.
If your clients do not intend to return to the U.S., rescinding citizenship or handing in their green card may be a consideration worth exploring to limit future U.S. taxation. Toll charges (taxes) may be required for those deciding to expatriate to avoid future U.S. taxation. Regardless of the decisions made, an experienced international U.S. tax professional should be engaged for assistance.
About the Contributor:
Ronald H. Drucker, CPA, JD, LLM is chairman of Drucker & Scaccetti, a tax and business consulting firm in Philadelphia and Scranton, PA. An FFI Fellow, Ron has more than 40 years of extensive business consulting experience, specifically with family businesses. He is also a partner in the Philadelphia law firm Drucker Beckman Sobel, LLP. Ron can be reached at RDrucker@dscpas.com.