Financial Document Translation Services for Compliance
Multilingual corporate document translation and accounting document translation services come in handy in compliance process with various tax and accounting regulations. Many US taxpayers have not yet discovered that they now have a new reporting obligation. If they hold significant funds on bank accounts outside the US or possess certain other foreign non-account investment assets, they must now file a form 8938 with their US tax returns. However, this is just a new form to report and technically not a new tax obligation.
In the past, US taxpayers did not pay much attention to Schedule B of their Form 1040, where they must confirm whether or not they have foreign bank accounts. Even when they ticked the box, many forgot to file form TD F 90-22.1 to report these Foreign Bank and Financial Accounts (FBAR) under the Bank Secrecy Act regulations issued by the Financial Crimes Enforcement Network (FinCEN). Nondisclosure was common, in fact it is estimated that less than 20% of tax payers were filing their FBARs
The penalty for failure to file an FBAR was minimal, and FinCEN had no interest in enforcing it. Moreover, the division that was then in charge of high-income individual returns did not audit many rich people’s returns.
FATCA is putting an end to that. Form 8938 does not replace FBAR, which must still be filed by 30 June while form 8938 must be filed with the tax return. Moreover, the reporting threshold is higher. Owners of foreign-held assets must file if they are worth more than $50,000 (the threshold for FBAR is only $10,000). The threshold is higher for overseas residents – they must file if the total value of their foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year (for married taxpayers filing a joint return, this is $400,000 and $600,000 respectively).
The penalty for not reporting foreign financial assets on form 8938 is $10,000. But this is just the beginning. There is an additional substantial penalty of 40% of the tax attributable to non-disclosed foreign financial assets, not to mention the criminal penalties and separate penalties for not filing FBARs.
Foreign Banks
Many foreign banks have started their exercise in due diligence, which should not be too difficult for them as since the crisis they have been working hard on the local compliance rules. In fact, many have already identified their account holders.
However, the IRS is working on signing intergovernmental agreements with many countries – particularly in Europe – allowing the countries to share information from one government to another. Since the Department of the Treasury will have to negotiate such agreements with over 60 countries, which will take some time and a significant amount of foreign language translation, it is not certain if the agreement will be signed and ratified in time for D-day, 1 January 2013.
Of course this does not by any means mean that all banks will jump on board and fully invest in the FATCA compliance system. In fact, most major banks have already told their US customers that they do not want to open new – or even keep – existing accounts for Americans – which of course is where the legal complications arise…