What is an “Are You an American” Letter from a Foreign Bank
A Bank Letter About Your Foreign Account, What To Do Next?
When it comes to foreign account and asset reporting, the most common form that taxpayers are aware of is FBAR — Foreign Bank and Financial Account Reporting. However, equally important to the FBAR is FATCA Form 8938 — a relative newcomer to the world of international tax. Unlike the FBAR, under FATCA, the United States has entered into agreements with over 110 foreign countries, with hundreds of thousands of foreign financial institutions reporting U.S. account holder information to the IRS. One important way that FATCA is different than the FBAR is that with the FBAR, it is a wholly U.S. law and does not involve any foreign countries. FATCA, on the other hand, involves two countries, per agreement, working together to achieve compliance. Oftentimes, the foreign financial institutions within that country will contact taxpayers to confirm their U.S. person status.
So, what happens when a taxpayer receives a FATCA e-mail or letter?
Review the Letter and Time to Respond
When a taxpayer receives one of these FATCA letters, it will typically inform the taxpayer that the foreign financial institution will be reporting to the U.S. government in conjunction with the specific type of agreement that the country has entered into, and then wants to confirm the customer’s U.S. person status. To ensure that taxpayers do not find themselves in a more precarious position than necessary, taxpayers should check the response due date so that they can comply or at least ask for an extension.
What is the Customer’s US Persons Status?
If the customer is a U.S. person for tax purposes, then the foreign financial institution will treat them as such and report taxpayer information to the US government. Thus, if a taxpayer is a U.S. citizen, lawful permanent resident, or foreign national who meets a substantial presence test ultimately, they will be submitting a W-9 form and not a W8-BEN.
Is the Account at Risk of Closure?
Sometimes, foreign financial institutions will threaten that they will close or freeze the account of the taxpayer does not respond in a timely. Depending on how important the foreign account is to the taxpayer, a timelier response may be required, which is also why taxpayers need to be sure to review the due date on the FATCA letter so that they can properly assess the strategies and risk and determine when to respond.
Did the Taxpayer Intentionally Misrepresent Their U.S. Person Status?
Sometimes, taxpayers will intentionally misrepresent to the foreign financial institution what their US person status is. Sometimes this is done when they’re opening the account, and other times it is done when they are updating the account. The taxpayer needs to determine the purpose for which they provided the incorrect information to the foreign financial institution because it can impact which offshore disclosure program they’re eligible to submit to. Taxpayers in this situation may want to consider speaking with the board-certified tax law specialist before making any representations to the IRS or foreign financial institution.
Late Filing Penalties May be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs Prior Year Non-Compliance
Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.