Received a FATCA Letter from Your Foreign Bank?

If you have any US connections and have a non-U.S. bank account, you may have recently received a letter from your bank asking for your tax information. This may seem odd or new to you but lately banks everywhere want to know if you are compliant with the IRS. Basically, the entire world is helping the IRS.

Since January of 2014, those holding accounts in foreign banks throughout the world have received Foreign Account Tax Compliance Act (FATCA) letters from their financial institutions. These letters are sent to account holders whom the institution believes have a link to the United States that would give rise to tax reporting and payment obligations.

A ‘FATCA letter’ is a letter from your foreign bank requesting certain information about your US tax status (and requesting you complete either a W-9 or W-8 form).  The letter usually also offers an incomplete discussion of the Foreign Account Tax Compliance Act (FATCA) legislation) which requires the bank to share your name, address, and other account details with the IRS.

These letters will request that the recipient provide information regarding their disclosures, if any, to the Internal Revenue Service (IRS). These disclosures typically include whether certain documents have been filed, including a Report of Foreign Bank and Financial Accounts (FBAR) and a 1040 personal return, and whether the individual has availed himself or herself of the Offshore Voluntary Disclosure Program (OVDP) administered by the IRS to resolve tax compliance problems.

Below are some Frequently Asked Questions received from our clients:

Why did I receive a FATCA letter?

If you have received a FATCA letter, you may already be on the IRS’ radar. FATCA requires foreign banks to identify accounts with a link to the US A link could mean a US address, US telephone number, US residence, frequent transfers to/from the US, or any other evidence of a connection to the US.

Depending on the jurisdiction and the Intergovernmental Agreement (IGA) that is in effect, the bank or qualifying financial institution may be required to submit this information to the IRS or face significant fines and penalties. Understanding the agreements in effect in your jurisdiction can help you better understand the risks you face.

How will my information reach the US government?

For FATCA purposes, there are two main models of IGAs: Model 1 IGAs and Model 2 IGAs. A Model 1 IGA is distinctive in that the banks can directly turn over an American account-holder’s information to the jurisdiction’s taxing authority. The foreign jurisdiction’s taxing authority will then pass that information along to the IRS.

In contrast, a Model 2 IGA, permits the direct transfer of information from the foreign bank or financial institution to the IRS. The IGA specific to your jurisdiction may also require special action for recalcitrant account holders or deem certain entities as “deemed-compliant foreign financial institutions” or “exempt beneficial owners.”

What are the potential consequences of FBAR non-compliance or other tax problems?

If a US taxpayer has failed to comply with his or her FATCA, FBAR, or other income tax reporting requirements, he or she could face significant penalties. When the non-compliant taxpayer’s account information is received by the IRS, he or she has likely already lost the right to participate in the various voluntary disclosure programs such as OVDP. A US taxpayer must avail themselves of the voluntary disclosure process prior to an investigation, or they will no longer potentially qualify for criminal amnesty or reduced civil fines.

Non-compliance with tax obligations can also lead to a civil tax action or criminal tax charges. A non-willful violation of FBAR obligations can result in a $10,000 fine for each violation. A willful FBAR violation can carry a penalty of the greater of $100,000 or 50% of the account balance for each violation. Criminal tax penalties can include significant prison sentences and fines that exceed the value of the accounts.

Contact Patel Law Offices if you have received a FATCA letter

If you have received a letter from your foreign bank or financial institution, it is not advisable to ignore it. By delaying action, you may eliminate certain voluntary disclosure options that could have led to a more favorable resolution than would be possible otherwise. Furthermore, if you have received a FATCA letter you are already on notice that your account is likely to attract further attention from the IRS.

If you have received such a letter, it is you must seek the advice of a tax legal professional. Failure to do so can result in significant civil penalties or a referral for criminal tax prosecution. Patel Law Offices can explain your legal situation and present potential solutions.

Patel Law Offices offers a strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.