Your Investment: More facts about FACTA

Part two of an interview with Felicia M. Seaton, a foreign attorney who focuses practice on US income-tax compliance.

Felicia M. Seaton 370 (photo credit: Courtesy)
Felicia M. Seaton 370
(photo credit: Courtesy)
This is part two of an interview with Felicia M. Seaton (, who has been practicing US law since 1996 and is also licensed by the Israel Bar Association as a foreign attorney. She focuses her practice on US income-tax compliance and US estate-planning law for Americans and Israelis residing in Israel.We spoke earlier about what FACTA is. A question I frequently receive is how the government can get all this information. Whatever happened to bank secrecy and client confidentiality? To legally circumvent countries’ bank-secrecy laws, thus far, nine countries have signed inter-governmental agreements [IGAs] with the IRS agreeing to trade information about account holders, and several countries issued a joint statement regarding the implementation of FACTA. As of November 2012, the Treasury Department announced that it was negotiating IGAs with 50 countries.
In addition, the threat of criminal prosecution is quite persuasive. It was reported extensively this summer that 100 Swiss banks that service US clients that have not yet been criminally investigated are willing to settle with the IRS. Some 19 Swiss banks and Israeli banks based in Switzerland are currently involved in IRS investigations or criminal cases.
No institution wishes to be prosecuted, nor even investigated by the US government. They do not wish to pay millions of dollars of fines like UBS paid. The banks are no longer able to protect their customers’ secrecy. We cannot expect them to do so any longer. It has even come to the Swiss Bankers Association recently apologizing for banks’ conduct resulting in criminal prosecutions and civil inquiries.
Is this information sharing imminent or will it start in the future? At the end of August of this year, a Department of Justice official insinuated that US persons with interests in Swiss bank accounts are running out of time to come into compliance; their names and account details will soon be turned over to the US.
Switzerland is not the only country playing “Let’s Make a Deal.” The UK reached agreements with several countries for information exchange. Israel is a member of the OECD, and as such, an Israel Tax Authority official announced at a conference earlier this year that discs containing account information were already being exchanged monthly.
What if I have never filed or didn’t report everything? Honestly, if you need to clean up your filings, it is best to consult with tax professionals – both an attorney and a CPA – who specialize in US income-tax compliance. This is true whether you have never filed or whether you have been filing but only reporting some of your income and/or assets. Start off on the right foot by doing it right the first and only time. Create an accurate model for your future filings.
A reporting obligation in the law since the 1970s Bank Secrecy Act has been actively enforced by the IRS since 2003. The reporting form is the FBAR. This obligation affects US persons who have “any interest” in an account located outside of the US. “Any interest” can include an agent under a power of attorney and a person who has signatory authority, so check with a tax professional to determine whether you are required to file and what you are legally obligated to include on your FBAR. If these non-US accounts had a cumulative balance on any given one day of the year of more than US $10,000, filing is mandatory.
I have heard some people don’t believe that they will get caught because the government isn’t looking for the little guy. What do you say to that?First and foremost, you risk criminal prosecution if you evade taxes. It is simple. US law has set forth several criteria for determining whether a US taxpayer has willfully evaded reporting or paying taxes. If you intentionally plan not to report or file or pay your taxes, once you know of your legal obligation, you are willfully evading taxes. This could end quite badly. Prison and fines are the sentences for criminal prosecution.
Many clients have asked how the IRS will enforce prosecution here in Israel. A spokeswoman for Bank Leumi acknowledged in writing in February 2013 that the bank had “previously stated that we are among the international banks within the scope of a US inquiry into tax matters involving US customers.”
In the last six months alone five people have pled guilty in criminal proceedings to counts of tax evasion in the US, due to unreported Israeli bank accounts. Clean it all up once and for all, and do it right. It is time.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group Inc. or its affiliates.
[email protected]
Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.