Tax Compliance Act, the law that will soon require banks and other financial institutions worldwide to report accounts with ties to U.S. taxpayers. The law’s
implementation date has already been extended once and is now set to commence in 2014.

IFC quotes IRS figures and says that in the first quarter of 2013, 670 Americans have torn up their passports. They claim most have done so to avoid IRS
reporting and FATCA. While the law has proven to be a nuisance to many Americans, tearing up a passport does not make the problem go away.

For decades, U.S. taxpayers – that includes dual nationals and resident alien “green card holders” – to report most financial accounts located overseas. Bank
accounts, hedge funds, securities accounts and even certain pension plans and life insurance policies with an investment component are all reportable. The U.S. is
virtually alone in requiring such disclosures although are countries are now adopting similar laws.

This means that many Americans haven’t complied because they simply don’t understand their reporting obligations. Both the government’s General Accounting
Office and the IRS’ own National Taxpayer Advocate have criticized the IRS for not doing a better job of educating taxpayers. At particular risk are the estimated
6 million Americans living overseas. The IRS received just 2 million tax returns from this group. Congress hopes FATCA will improve compliance.

The IRS is currently running an amnesty program but even the amnesty penalties are significant. The penalties for not complying, however, are huge; the risk of
prison and the greater of $100,000 or 50% of the highest account balance for each non-complying account and for each year the account was not reported! Many
speculate that the spectre of such unrealistic and confiscatory penalties have driven some Americans to simply tear up their passports.

Ripping up a passport to avoid FATCA and the IRS may merely be a symbolic gesture, however. It is possible to renounce one’s citizenship although Congress
and the IRS says that doesn’t get you off the hook for any taxes you may owe. In other words, it may feel good to rip up your passport, it doesn’t solve the
problem.
For people who have intentionally violated the foreign reporting laws, the amnesty program may be a great deal. No audit, no criminal prosecution and a one time
penalties. For others, however, there may be better alternatives. Special programs exist for ex pats living offshore with no U.S. income, for “accidental” Americans
(those born overseas but are technically US citizens) and for holders of accounts with a combined balance of less than $75,000.

Often, taxpayers are better off simply going through a voluntary disclosure process with the IRS. Although there are no guaranties, for those who can demonstrate
that their actions were not willful may receive a single $10,000 penalty or no fine at all. Because the risks are so high, however, waiting is never a good strategy.
(The new FATCA law dramatically increases the risk of getting caught.)

We have ex IRS CPAS to help you.