If you've got an IRS letter on your desk right now, you have a decision to make, and the clock matters. I'm Darrin Mish. I've spent 32 years helping people with exactly this kind of situation. Here's what you should do.<\/p>\n
Foreign Banks to Comply with IRS Law<\/p>\n
A new law for foreign banks compels them to divulge information about the deposits<\/a> by their US account holders.\u00a0 Its objective is to nab US tax evaders who stash their money in accounts with foreign banks especially in the light of the confession of Swiss bank UBS of assisting its American customers in dodging taxes.\u00a0 The bank had to pay hefty fines and release details of several thousands of its US account holders to the IRS last year.<\/p>\n The law provides for a withholding tax of 30% of their income from US customers if the foreign banks fail to comply.\u00a0 It is expected to be passed by the US Congress in the coming months and would go into effect December 31, 2012.<\/p>\n However, the IRS who is tasked with enforcing the law said that it would not expect foreign banks to give information on the identities of individual account holders.\u00a0 That would be too impractical in view of the millions of existing and future accounts.\u00a0 Hence the IRS would be taking a more general approach by looking at the banks\u2019 macro processes.\u00a0 This ought to come as a relief to foreign banks who have been asking for a softer stance in this matter by the US government, complaining of the difficulty of compliance.<\/p>\n The law encompasses all other financial institutions like hedge funds and private equity funds.\u00a0 In addition, a US tax official also mentioned that there would likely be greater leniency for existing accounts compared with new accounts.<\/p>\n Municipal Bonds Regulated by IRS and SEC<\/p>\n The IRS is collaborating with the Securities and Exchange Commission (SEC) in enforcing greater regulations on the municipal bond market.\u00a0 The respective heads of the IRS and SEC signed a Memorandum of Understanding (MOU) on behalf of their agencies on this matter.\u00a0 The cooperation between the agencies is aimed at improving the compliance to the rules on municipal securities, especially tax-exempt bonds.\u00a0 Under the MOU, the agencies also agreed to share information on practices and risks in the municipal bond market.<\/p>\n State and local governments through their municipal councils often issue bonds to the general public in efforts to raise funds for essential works like road maintenance, schools and hospitals.\u00a0 The market is worth an estimated $2.8 trillion.\u00a0 Many retail investors participate in this market because municipal bonds are seen as safe investment risks that give reliable returns.<\/p>\n However, recent adverse developments have underscored the importance of stricter regulations over this market.\u00a0 Jefferson County, Ala., almost fell into bankruptcy when JPMorgan Chase & Co. canceled interest-rate swap contracts with the county worth around $700 million, causing its debts to skyrocket to $3.9 billion.<\/a>\u00a0 If Jefferson had gone under, it would have been the nation\u2019s largest municipal bankruptcy in history.<\/p>\n