Beginning in 2014 the IRS will oblige foreign financial institutions to comply with information reporting and withholding tax provisions of FATCA (Foreign Account Tax Compliance Act). The intent is to bring to a halt offshore tax evasion. The financial institutions will have to provide directly to IRS information on accounts held by US persons. The reporting is to include the name, address, account number, account balance and value as well as the account's deposits and withdrawals or payments of each account holder. Failure to comply will result in a 30% withholding tax on all payments from US sources and cutting the entity from profitable US investments.
The dilemma for Americans holding financial assets in foreign financial firms is exposure to having under-reported income on a federal income tax return or assets on the Foreign Banking Account Report. Such under-reporting not only raises the specter of owing income taxes to the IRS but also of severe penalties for non-compliance.
With this implementation of FATCA provisions net year, the safe route for anyone having failed to comply with the onerous IRS filing requirements is to take a proactive approach and report what was previously hidden. Renouncing US citizenship or residency is no safeguard against the consequences of being found out. It is only a safeguard for in respect of future filing requirements.