Foreign Account Tax Compliance Act (FACTA) proves to be an American-issued and -rigorously enforced law. It requires all United States’ citizens living either stateside or overseas to make annual report filings of any foreign bank account holdings they possess. This FACTA law came into effect back in 2010 along with the HIRE Act. The goal ostensibly was to encourage and foster greater transparency in the worldwide financial services universe. The ulterior motive lay in knowing any and all U.S. individuals’ accounts which they might use to hide income or assets overseas. The ultimate goal is to maximize every last dollar in taxes form overseas-living Americans.
It was former U.S. President Barack Obama who signed the new HIRE Act into law in 2010. With this Hiring Incentives to Restore Employment Act, he was seeking to cut down the stubbornly high rate of unemployment that refused to disappear after the global financial crisis and meltdown of 2008-2009. Among the incentives they dangled in front of employers with the act was the ability to increase their business tax credits on every new staff member which a firm hired and retained for minimally a calendar year. There were still other incentive included in the bill. Companies benefited from a special payroll tax holiday advantage as well as a higher expense deduction limit on any new factory or production equipment which they purchased back in 2010.
Naturally the President and Congress required a revenue stream with which to pay for these business benefits and incentives. What they came up with was the requirement that all American tax payers report all of their assets maintained outside of the United States ever year. The idea was that in taxing such foreign-based accounts and assets, the country would boost its revenue sources enough to pay for the desperately needed corporate job stimulation programs. To provide a sufficient penalty incentive for American citizens to reveal these hidden assets, the IRS created a stiff regimen for any American resident or overseas-living U.S. citizen who chose not to report their international account assets and currency amounts which was greater than $50,000 value during the course of any tax year.
To grow the potential additional revenues by as much as possible, the government applied the new requirements not only to presumably wealthy and foreign-born individual Americans, but also to NFFE Non-Financial Foreign Entities and FFI Non-US Foreign Financial Institutions. These internationally based banks were then mandated to become compliant with the new revenue-catching law by revealing all American citizens’ identities and the worth of any and all of their assets kept in their banks. Banks have to report this information to the IRS Internal Revenue Service or alternatively to the IGA FACTA Intergovernmental Agreement.
For those FFI’s which elect to not comply with the Internal Revenue Service, they will summarily be banned from the United States’ markets and banking system. They will also suffer a 30 percent deduction of any witholdable payments’ amounts in the form of a tax penalty.
These payments relate to U.S. financial assets and income generated and kept in the banks. They include dividends, interest payments, remunerations, salaries and wages, profits, and compensations. Those NFFE’s and FFI’s which comply with the law have to report every year the identities of all their account holding U.S. citizens. This includes their names, addresses, and TIN tax identification numbers for every account. They also have to divulge the Americans’ account numbers and balances, and all withdrawals and deposits made using the account during the calendar year.
The real goal behind FACTA is to eliminate tax evasion of American businesses and citizens who invest, earn, and operate in such a capacity as to gain taxable income overseas. It remains legal to own and operate an offshore account. It is in not properly disclosing it to the IRS that it becomes illegal. The reason is because the United States is the only major economy and jurisdiction to tax all of the assets and income from its citizens regardless of where they live, reside, and realize income in the world.