Possibly the biggest global treasure hunt in history is going on, as the U.S. government recovers billions of dollars in taxes owed on money kept in foreign bank accounts with many billions more at stake.
The Internal Revenue Service is making this global push to go after taxes on money Americans at home and abroad have in foreign banks in a high-stakes pursuit.
The push, targeting both banks and taxpayers, already has yielded more than $10 billion for the U.S. Treasury, produced a new tide of paperwork and, many say, led to some unintended consequences.
More expatriates are surrendering their citizenship in what some say is an attempt to avoid paying U.S. taxes.
And some foreign banks are reluctant, or refusing, to accept deposits by American citizens out of concerns for record keeping requirements and potential penalties.
The rules, part of the Foreign Account Tax Compliance Act or FATCA, which were passed in 2010 and took effect as of July 2014, focus on U.S. citizens, green card holders and foreign financial institutions or FFIs.
"This is the IRS trying to combat tax evasion by U.S. people holding accounts and other assets offshore," said Marc Valente, a tax director at PricewaterhouseCoopers in Melville. "They want transparency."
While pursuing tax payers abroad is nothing new, the new wrinkle is that the U.S. government is pressuring foreign banks to get data on dollars that are subject to taxes.
"Should you be taxed based on citizenship or residency? Just about every country in the civilized world taxes based on residency," said Saul Brenner, a tax partner and chair of the international practice at Berdon with Long Island offices in Jericho. "Do we have it right and everyone else has it wrong?"
The IRS said the Department of Justice's Swiss Bank Program is leading to information from those banks about U.S. account holders, in return for not prosecuting the institutions themselves.
"The U.S. is going beyond its borders," Brenner said. "A bank in Singapore or Switzerland is not within U.S. jurisdiction. The banks are doing it, because they have a sledgehammer over their head. The U.S. government will say the person who opens the account won't tell us. We need a third party to tell us."
The banks are becoming an enforcement arm of the U.S. government as it seeks to unearth and tax hidden funds. And numbers seem to show that the approach is working.
"Foreign banks are required to report to the U.S. government," Valente said. "The U.S. government has more access to U.S. account holders."
Nearly 60,000 taxpayers since 2009 have come forward through the Offshore Voluntary Disclosure Program, paying more than $9.9 billion in taxes, interest and penalties, according to the IRS.
Another 48,000 taxpayers modified returns regarding errors and omissions involving foreign bank accounts, generating $450 million in taxes, interest and penalties.
"The IRS has passed several major milestones in our offshore efforts, collecting a combined $10 billion with 100,000 taxpayers coming back into compliance," IRS Commissioner John Koskinen said late last year. "The IRS continues to urge those people with international tax issues to come forward to meet their tax obligations."
For foreign banks, this means more record keeping and additional costs, so they can track and report on funds held by Americans.
"Banks have to modify their systems," Valente said. "They have to be able to have information from their systems that would enable them to comply with the regulations."
Accountants are getting calls from people contacted by banks that indicate they will provide information to the U.S. government.
"We've had clients who received notification from the foreign account holder, saying your name is going to be reported." Valente said.
While this can mean taxes for individuals, it can even mean problems in opening accounts with banks based abroad.
"Some institutions don't want U.S. customers," Valente added. "A lot of them tell U.S. account holders, 'We don't want your business. Take it somewhere else.' They don't want to be bothered by the reporting requirements."
Brenner said he's had clients who faced issues in opening accounts in foreign banks, which weren't eager to have deposits belonging to Americans.The U.S. is going after people around the globe, even if they haven't lived in the United States for years.
"You don't know what we had to go through to try and find a bank that would open an account for the estate," he said of an estate abroad that involved U.S. citizens. "When they (banks) heard there were potential U.S. beneficiaries, they said, 'We're not interested.'"
The number of expatriates who renounced their U.S. citizenship in 2016 rose 26 percent to 5,411 from 4,279 the prior year and 58 percent from 3,415 in 2014.
The International Tax Blog described "the escalation of offshore penalties" as a likely cause.
"Since FATCA was introduced, official figures show that more and more Americans give up their U.S. passports every year," Nigel Green, CEO of London-based financial consulting firm deVere Group, said in a written statement.
Something known as a Report of Foreign Bank and Financial Accounts or FBAR kicks in with as little as $10,000 in foreign bank accounts, even if it's less in each account.
"You could have zero in it at the end of the year, but if at any point you are at or above that threshold, you have to report that," Valente said. "The threshold for foreign bank reporting is very low. It could have an impact on the smaller individual taxpayer. They may not even know that the requirement exists."
While regulations impact individuals, companies also are finding themselves in the IRS' crosshairs.
"I think for those individuals and companies with a huge international presence and with dozens of accounts, it will be a huge compliance burden," Valente continued.
President Donald Trump has talked about cutting back on regulations and reducing taxation on firms abroad.
Legislation has been introduced to repeal FATCA, but at least for now, the feds are pursuing foreign accounts and levying hefty penalties.
"I would think the U.S. is going to want to continue this transparency," Valente said.