Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW -

dis­close th­ese ac­counts will be ex­posed to tax penal­ties and to for­eign bank ac­count re­port penal­ties.

US tax­pay­ers living in SA of­ten ex­pe­ri­ence dif­fi­culty keep­ing up with the an­nual US tax re­turn and bank ac­count re­port fil­ing re­quire­ments. Some in­di­vid­u­als are un­aware that they are US tax­pay­ers and that they have US fil­ing obligations, as typ­i­cally hap­pens with green card hold­ers and other US tax­pay­ers who have not lived in the US.

Un­for­tu­nately the tests for US tax­payer sta­tus and fil­ing obligations are for­mal­is­tic, and do not look to the in­di­vid­ual’s state of mind or knowl­edge. Where in­di­vid­u­als are cat­e­gorised as US tax­pay­ers un­der th­ese rules, they gen­er­ally have to re­port their South African bank ac­counts on US tax re­turns and for­eign bank ac­count re­ports.

The in­tro­duc­tion of Fatca in SA means that US tax­pay­ers who hold South African ac­counts are about to be re­ported to the US au­thor­i­ties, in­clud­ing those whose non­com­pli­ance with US rules may be un­in­ten­tional or un­wit­ting.

US tax­pay­ers who should have, but have not, dis­closed their South African ac­counts to the US au­thor­i­ties have three broad op­tions:

The eas­i­est (but the worst) op­tion is to do noth­ing. US au­thor­i­ties have re­peat­edly shown their pre­pared­ness to track down US tax­pay­ers sus­pected of be­ing non­com­pli­ant, then to im­pose penal­ties and some­times in­sti­tute crim­i­nal pro­ceed­ings.

A sec­ond broad op­tion for th­ese in­di­vid­u­als is to make a “quiet dis­clo­sure” to the US au­thor­i­ties. Quiet dis­clo­sure means sim­ply fil­ing (or amend­ing) re­turns and bank ac­count re­ports with­out en­gag­ing the US au­thor­i­ties. Quiet dis­clo­sure as a means of reg­u­lar­is­ing undis­closed for­eign bank ac­counts is not rec­om­mended. The IRS typ­i­cally views undis­closed for­eign bank ac­counts with sus­pi­cion, and re­gards any at­tempt to in­for­mally reg­u­larise this type of non­com­pli­ance with even greater sus­pi­cion. The IRS has openly warned tax­pay­ers with undis­closed for­eign ac­counts not to at­tempt mak­ing quiet dis­clo­sures, and eas­ily de­tects quiet dis­clo­sures through late filed bank ac­count re­ports which are a give­away.

The third broad op­tion, and in most cases the only real op­tion, is vol­un­tary dis­clo­sure. Some forms of vol­un­tary dis­clo­sure pro­vide strong pro­tec­tion against crim­i­nal pro­ceed­ings, but can be costly as far as penal­ties are con­cerned; while oth­ers do not pro­vide pro­tec­tion against crim­i­nal pro­ceed­ings, but al­low for low or min­i­mal civil penal­ties.

A key re­port­ing dif­fer­ence is that in the US, the ex­is­tence of for­eign ac­counts also needs to be dis­closed


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