The risk versus reward analysis for offshore account holders changes drastically with the implementation of the Foreign Account Tax Compliance Act (FATCA). As a result of FATCA, offshore, undisclosed account holders will be faced with a dilemma: a continuous potential 30 percent withholding on select payments to the account or a one-time payment of 27.5 percent of their highest account value and other penalties and taxes under the current voluntary disclosure program.
The current voluntary disclosure program of the Internal Revenue Service (IRS) allows the offshore account holder to control disclosure, but FATCA could change that. FATCA requires each foreign financial institution that enters into an agreement with the IRS (a participating foreign financial institution) to identify and report their U.S. accounts beginning in 2014.
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