Texans and other Americans who have offshore financial accounts have paid $5 billion in taxes after disclosing their holdings to the Internal Revenue Service.
In 2010, Congress passed a law requiring financial institutions outside the U.S. to pass on information about their American account holders to U.S. tax agencies. The largest provisions of the law will go into effect next year, and some international banks and wealth-management advisers have said they won’t accept business from Americans as a result.
The United States differs from many other countries in that it requires American citizens to pay taxes on income earned outside the U.S. borders, which includes interest on accounts. The IRS has vowed to crack down on taxpayers who are keeping their assets in foreign accounts, and the first payout of $5 billion shows that the agency’s hunt is working.
The IRS also is allowing taxpayers to catch up on the requirements to file returns. Some people, for instance, only recently learned they were required to pay U.S. taxes. Non-resident taxpayers who share their information with the IRS must file three years of past returns and also provide other paperwork proving their assets for the past six years.
Three years ago, the IRS began programs to urge American taxpayers to detail their foreign accounts. They paid back taxes and penalties but likely will not face prosecution. Taxpayers voluntarily made almost 35,000 disclosures since then.
At the same time, the IRS and Justice Department have been filing criminal charges against Americans whose assets and accounts officials have discovered, but the owner has not revealed.
For some taxpayers, the news that they owed taxes surprised them. Sometimes Americans living abroad have not known they had tax obligations to the U.S., especially if they were paying taxes to the country where the income was earned. One tax attorney, for example, said he has a client in Europe who had not filed the required paperwork because she did not think she had to following a conversation with an official at the U.S. embassy. In a case like that, government incompetence shouldn’t mislead someone who likely wants to do the right thing.
Source: Business Week, “IRS Says Offshore Tax Disclosures Have Yielded $5 Billion,” Richard Rubin, June 26, 2012