Hong Kong has signed a formal FATCA agreement with the U.S. Treasury Department (announced Nov. 13, 2014). Under the agreement Hong Kong financial institutions will enter into FFI agreements with the IRS and will report information on US account holders directly to the IRS.
An FFI Agreement is an agreement in which a foreign financial institution agrees to perform due diligence on its account holders, to report periodically on its U.S. accounts to the IRS, and to withhold tax on certain deposits. A FATCA - FFI Agreement requires institutions to:
- Identify which preexisting individual account holders are already documented as U.S. persons for certain withholding or information returns (FBAR FinCen 114, 3520, 3520A, 8938) purposes.
- For individual accounts with aggregate values exceeding $1 million, an enhanced review of documents associated with the account for the previous five (5) years must be performed. Aggregate is defined as total of all accounts.
IRS Cracks Asia: Hong Kong's signing is a major turning point for the IRS. It is well known that there are significant amounts of cross border commerce and banking that goes between the US and Hong Kong. Further, Chinese traditions regarding family and wealth accumulation are well known to the IRS. In the past, many have assumed that the IRS looked the other way or individuals would not get caught. However, in the Northern District of California, the IRS has criminally prosecuted several Chinese individuals for banking and tax violations recently (2014). Further, we have a number of Chinese clients that have come forward during the past few years under the various amnesty programs that the IRS has offered (see OVDP). Whether through criminal prosecution or voluntarily coming forward, individuals have been required to disclose information regarding their banking processes, bank habits, associates and bank managers, accountants, attorneys and other advisors. This information along with the FATCA information will speed up the identification of people who have not been compliant with IRS tax reporting.
Those with unreported income or unreported foreign bank accounts are wise to seek counsel with an experienced international tax attorney. We discretely represent individuals who have not reported their taxes correctly, limiting penalties and fines, as well as, limiting the likelihood of criminal charges. Call us today English: (415) 394-7200. Mandarin/Cantonese: Henry Young at (415) 309-0026.
Related content: Finding Offshore Bank Accounts & Real Estate in China
The New York Times reported on the increased use of undercover operations. The whole article is here. Portions of the article that we find especially relevant to our tax law practice are below:
At the Internal Revenue Service, dozens of undercover agents chase suspected tax evaders worldwide, by posing as tax preparers, accountants drug dealers or yacht buyers and more, court records show.
Sending federal and local agents undercover to meet with suspected money launderers 'is a more direct approach than getting a tip and going out and doing all the legwork and going into court mode.' (Quote from Thomas Hunker, a former police chief)
Within the Treasury Department, undercover agents at the I.R.S., for example, appear to have far more latitude than do those at many other agencies. I.R.S. rules say that, with prior approval, "an undercover employee or cooperating private individual may pose as an attorney, physician, clergyman or member of the news media."
An I.R.S. spokesman declined to say whether I.R.S. undercover agents have posed in these roles in an effort to get information that was not considered "privileged," meaning the type of confidential information someone shares with a lawyer or doctor.
In our tax law practice we have seen the increased use of undercover operations or criminal investigations go on for years without the target knowing about it, most often with the investigation of tax preparers. That may be because the I.R.S. has made tax preparers a priority in the last few years, so undercover agents and tactics being discovered now that indictments are coming down.