New U.S. regulations are prompting some financial advisers to urge their clients to close their offshore accounts and bring their money and securities back to the U.S.  American citizens and foreigners living in the U.S. will be required to make extensive disclosures about overseas holdings on their tax returns, or risk harsh penalties.  Foreign financial institutions also will be required to report more detailed information on income earned by their U.S. account holders, or face possible U.S. tax penalties. The rules - the Foreign Account Tax Compliance Act, or "Fatca" - are set to take effect this year, with additional requirements set to be phased in over the next several years. Proceed With Caution. Implementation of Fatca is one of the latest turns in Washington's 3-year campaign against offshore tax evasion.  In a 2009 settlement, Swiss bank UBS AG agreed to turn over to the U.S. the names of more than 4,000 U.S. taxpayers with secret accounts. Financial advisers who want to keep clients out of trouble with the IRS are now taking a closer look at Swiss bank accounts and funds based in tax havens such as the Cayman Islands.  These accounts, already red flags for audits, likely will come under even more scrutiny.

"If you have any client with a hint of a foreign connection, proceed with great caution." PagesThe new U.S. regulations and a host of changes by other countries have created an "obstacle course" that is difficult to navigate.  -- Leigh-Alexandra Basha, chairwoman of int'l private wealth services at Holland & Knight.

Penalties. For those who don't follow the new reporting rules, the risks of penalties will be severe - as much as $10,000 for each account if the IRS determines the account holder simply made an error;  up to 50% of the account balance if the IRS determines the account holder was purposely trying to hide the assets. Administrative Burdens. The tax changes also can mean duplicative reporting. A taxpayer with more than $10,000 in an offshore account, for example, already must file with the IRS a Report of Foreign Bank and Financial Accounts.  Now, anyone with at least $50,000 in a foreign account will have to file a separate tax-compliance form, along with his or her annual return. Alternatives. Attorney Charles Kolstad with Venable LLP, says an alternative to a Swiss account may be a trust set up in Delaware, Alaska and South Dakota - states where the law favors trustees. The new reporting requirements also apply to certain foreign financial assets, including stock of foreign companies and business partnerships, which didn't have to be reported before.  Some of these investments may become too troublesome to be worthwhile, advisers say. Foreign mutual funds and some kinds of foreign life insurance, for example, will have to be reported annually under the new rules, instead of just when bought or sold. To avoid a tax problem, an adviser may suggest a client with a lot of these investments replace them with U.S. mutual funds that invest in foreign securities. Real estate held overseas also may become a headache. Taxpayers will have to report to the IRS any stake in property worth more than $50,000 if the property is owned by a partnership, which many families set up for such purposes. That means that a client with, say, a piece of a family-owned villa in Tuscany will have to get more frequent appraisals, a process that can be costly. Balancing Act. The challenge is balancing the need to let the U.S. government know where its taxpayers are keeping their money and earning income, without compromising the confidentiality of clients' estate plans.  A French individual living in the U.S., who say, holds foreign life insurance, foreign mutual funds and shares in foreign companies, may think twice about moving back overseas - because he or she might have to pay a hefty U.S. exit tax, creating something of a Catch-22. For further details, go to:   [WSJournal, 3/12/12].