FATCA seminar hears of stiff penalties

The U.S. Internal Revenue Service has at least seven ways to catch those trying to avoid its Foreign Accounts Tax Compliance Act, and a Department of Justice database on 33,000 taxpayers to help. 

Local officials estimate that as many as 6,000 people in Cayman – more than 10 percent of the population – will have obligations under FATCA, whether paying taxes, filing forms, reporting on bank accounts or just seeking legal advice. 

“FATCA is coming. The U.S. has delayed implementation by six months, but it’s coming,” said George Town representative Roy McTaggart. 

Opening Friday’s half-day FATCA seminar in a packed ballroom at the Westin, Mr. McTaggart said the Cayman Islands government hoped to offer “a kind of road map, giving you the best resources available,” helping U.S.-affiliated people navigate the complexities of the law, intended to collect arrears from delinquent taxpayers. 


Many may be caught unaware  

A host of those liable to the IRS may not even know it. The IRS net is designed to catch Green Card holders; property owners; anyone with a U.S. bank account or signing rights; anyone with shares in a U.S. company, a trust or pension plan; anyone with a U.S. passport, whether they use it or not; even anyone born in the U.S. whether or not they have a U.S. passport; or even using a U.S. mailing address. 

“These are enhanced reporting requirements to help the U.S. government ferret out those who have not been paying their taxes,” said keynote speaker Steven Cantor, managing partner at Miami’s Cantor and Webb law firm. 

“The U.S. is against taxpayers collecting foreign income outside of tax,” he said, explaining that even the American spouse of a non-American is liable for half the income earned in the joint household. 

Acknowledging the welter of detail and difficulties in the law, part of 2010’s Hiring Incentives to Restore Employment Act, Mr. Cantor said the only people that like FATCA are lawyers and accountants.  

“From the perspective of a U.S. international tax attorney, we love FATCA for four reasons: complexity; uncertainty, with all the changes since 2010; change, with all the amendments and reforms to the law; and fear-mongering,” Mr. Cantor said. 

“One man told me it was the end of Western civilization as we know it,” Mr. Cantor said, explaining that “No, FATCA is aimed at foreign financial institutions and other financial intermediaries to prevent tax evasion by U.S. citizens and residents through use of offshore accounts.” 

Those “foreign financial institutions” and intermediaries include any business that accepts deposits in the ordinary course of its affairs. The definition includes banks and financial services firms, and any entity, including insurance companies, that invests, trades in securities or commodities, partnership interests or annuity contracts. 



Any foreign financial institution failing to identify its U.S.-owned accounts faces a 30 percent withholding tax on all U.S.-based income and assets. 

On Aug. 19, the IRS opened an online “portal” by which FFIs register with the agency, providing information on operations related to U.S. account holders.  

They must finalize that information by January 2014, receiving a “global intermediary identification number,” followed by the June IRS publication of the FFI list. 

Mr. Cantor described the seven ways the IRS could identify someone trying to avoid FATCA compliance, starting with IRS litigation. 

“There also could be changes in the law. There might be a whistleblower. If you go to renew your U.S. passport, you may be asked if you have paid your taxes. There is what we call ‘audit by infection,’ when your name may come up during the course of someone else’s audit. 

“When you enter into the U.S., you may be asked, and your Green Card taken. The officer will tell you where you can pick it up as long as you bring your tax returns proving you have paid.” 

Finally, Mr. Cantor said, the agency will learn about ownership of U.S. assets at the time of your death. 

Audible despair gripped the hundreds of audience members when Mr. Cantor described eight IRS and Treasury Department forms required by the agency, followed by another five that might be needed. 

Penalties are stiff for not filing, he said. For example, falsifying or failing to submit Treasury Department Form 90-22.1 could draw a $500,000 fine and up to 10 years for in prison. Tax evasion, he said, is liable to a $250,000 fine and up to five years. Failing to file a tax return attracted a $100,000 fine and up to one year imprisonment. 

Following the presentation, Mr. Cantor, alongside Mr. McTaggart and KPMG partner and “head of tax” Doug Harrell, heard an hour of eager audience questions, most related to complex personal circumstances. 

Mr. Cantor told one interlocutor that renouncing U.S. citizenship is unlikely to be effective: “First, you have to have another passport before you can do that. You cannot be stateless.” 

An “exit tax” would also apply, he said, describing a law that “started when a certain resident here [Cayman] came from Belize.” Someone seeking to expatriate themselves, he said, could be forced to sell their assets, relinquish any trusts and pay state taxes. 

“Until the State Department gives you a certificate [of expatriation], you cannot relinquish your passport, not until all your taxes are paid.” 

The seminar was hosted Cayman Finance, which was also one of the organizers of the event in conjunction with the Ministry of Financial Services.


  1. Steven Cantor must be a FATCA lawyer because he is giving his clients false information. Contrary to what he claims, Americans can indeed renounce and become stateless and renunciations are most likely to be effective. Once one renounces US citizenship, then one is no longer burdened with the complications of being a US citizen, with or without the exit tax.

  2. Thank you for publishing this informative article on the US extra-territorial law FATCA. I would like to comment on three statements that are incorrect:

    1) First, you have to have another passport before you can do that (ed.: renounce US citizenship). You cannot be stateless.

    US law actually allows US citizens to become stateless. Whether that is advisable is another issue.

    2) An exit tax would also apply, he said, describing a law that started when a certain resident here Cayman came from Belize. Someone seeking to expatriate themselves, he said, could be forced to sell their assets, relinquish any trusts and pay state taxes.

    The exit tax applies to covered expatriates who generally have more than 2 million in net assets or has had a tax liability of at least 155,000 per year (this threshold varies due to inflation indexation). In short, the exit tax applies only to wealthy covered expatriates. It does not apply to US citizens who do not meet the covered expatriate criteria.

    3) Until the State Department gives you a certificate of expatriation, you cannot relinquish your passport, not until all your taxes are paid.

    This is also incorrect. The State Department issues a Certificate of Lost Nationality (CLN) separately from the former US citizen submitting his/ her final tax return. The CLN is generally received within a matter of months and the final tax return must be filed by 15 June of the year following the renunciation.

    Hope that this helps to clarify these points.

  3. @FloydTurbo
    One very small addition to your comment regarding the exit tax. On required IRS form 8854, one must indicate they have complied with all tax requirements for the 5 years preceeding the date of renouncing/relinquishing or termination of residency. Failure to do so can result in an expatriate being covered. Though I have never understood how this would be applied to someone who has less than 2 million in assets with a deemed sale exclusion of 663,000 (for 2013).

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