The effect of foreign currency in accounting - Essay Example

Munaf Usmani Academia Research April 04, The Foreign Account Tax Compliance Act Executive Summary The Foreign Account Tax Compliance Act is an austerity measure to regenerate employment within the US economy. However, these additional disclosures and subsequent penalties can become very cumbersome for the taxpayers with foreign investments etc. The primary focus on this act, now passed into law, is for the vivid disclosure of any and all foreign financial assets held by US residents and aliens alike, which exceed the value of $50,000 at any time during the prevalent tax year.

Although similar disclosure mechanisms have been in place prior to this, the new law encompasses a greater range of asset classes which are being brought under the tax net. It is applicable to individual persons as well as corporate entities. The disclosure procedure includes the attachment of an additional document alongside the individual’s income tax return form. Failure to disclose the proper amount or the exclusion of any particular asset from the reporting can result in stringent fines.

The minimum penalty that is applicable is $10,000. After the initial penalty is charged, there is a grace period of 90 days before incremental charges start to accrue. These charges apply at a rate of $10,000 for every 30 days gone by without the proper rectification. This however is applicable after the 90 days grace period is over. Additional penalties have been declared for gross negligence amounting to 40% of the amount misrepresented or omitted without criminal intent. This is a spike of 100%, moving from 20% of the gross to 40% of the gross.

A key note which is beneficial for the IRS and not so beneficial for the tax payer is that the statute of limitations on performing audits of taxpayers has been extended two fold to 6 years. Previously, the IRS authorities only had the right to investigate the revenue generation of people and companies up to a maximum period of 3 years prior. But with the advent of the new system, this has been extended to 6 years to enable better audit management. The act has a wide range of assets included in their ambit, and the penalties are just as equal.

In the case of a foreign trust, failure to file the proper disclosure can result in a fine of $10,000 or 35% of the gross, whichever is greater. If there is a Grantor Trust Status, the US Transferor is accountable for the reporting of this income/asset. Income generated in the form of dividends from foreign capital investments are also subject to this act’s taxation. FATCA is primarily about rigorous reporting to the Treasury, but on the other hand, failure to comply with these regulations can result in much more costly fines.