LONG ARM OF US LAW
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