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Chinese residents may receive more scrutiny from IRS

In 2010, Congress sought to close the tax gap by going after those who failed to pay tax on their offshore accounts. The law, titled the Foreign Account Tax Compliance Act or FATCA, went into effect this week.

U.S. persons (citizens, residents and entities) need to disclose any foreign accounts which more than $10,000 each year or face serious penalties.

For the past three years, the number of Chinese immigrants to the U.S. each year has been second only to Mexico. Almost 80 percent of the EB-5 investor visas went to Chinese nationals. In general, only wealthy individuals can qualify for investor visas, because investment requirements start at $500,000. Wealth left in Chinese accounts is generally subject to U.S. tax laws. 

Right before the new rules went into place, the U.S. Treasury reached an information-sharing agreement with China. The agreement means China will send the IRS data on U.S. citizen and green card holder accounts at Chinese financial firms. The IRS can then match that information with disclosure forms to determine whether an account is tax compliant.

Two groups will be affected. The first is Chinese green card holders or those with U.S. passports who have not made the proper account disclosures. The second is Chinese citizens who have earned money illicitly and are storing it in U.S. banks, since the U.S. will also be sending back data on Chinese accountholders. 

What do you need to disclose? The list includes savings accounts and investments, but also some life insurance policies and retirement accounts. An experienced tax attorney can answer questions as they arise. Serious IRS penalties are possible and include jail or the loss of up to 50 percent of your account. 

Source: The Wall Street Journal, "Rich Chinese in Reach of New U.S. Tax Laws," Wei Gu, July 3, 2014

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