FATCA – the Foreign Account Tax Compliance Act – is a US law that has made the world’s financial system the reporting and enforcement agent of the IRS.
It accomplishes that goal by forcing tens of thousands of foreign banks (in dozens of cooperating countries) to annually review their client records.
If those records contain indications of US status (‘US indices’), the bank will write to inquire about the client’s US tax and residence status, usually providing either a Form W-9 or a Form W-8, one of which the bank requests be completed and signed under penalty of perjury.
If you have received this FATCA letter, it means that under the FATCA regulations, your bank has detected “US indices” on your account which identify you as a likely US account-holder.
If you have failed to report your foreign accounts on the Foreign Bank Account Report (FBAR), or failed to file the Form 8938, or failed to report your income from these foreign accounts on your US tax return, then you have likely violated US law.
Thankfully, there is a limited time to take action to resolve your violations of the US tax law. A skilled IRS voluntary disclosure Tax Adviser like GEMANA can assist in understanding your exposure and resolving it through the appropriate IRS program – usually either the Offshore Voluntary Disclosure Program, or OVDP, or the Streamlined Domestic Offshore Procedures (‘Streamlined’).
FATCA Compliance Letter
A FATCA compliance letter will usually begin with a summary of why the foreign bank is writing the individual – usually with a clumsy or difficult-to-understand summary of the FATCA legislation and, to varying degrees of specificity accuracy, an explanation of the ‘due diligence’ that the bank must undertake.
The letter will then turn to the bank’s actual goals: requiring the client to clarify his/her US tax status by either:
– Supplying a completed and signed Form W-9 conceding the client is a US taxpayer
– Supplying a completed and signed Form W-8, which declares the client is not a US taxpayer, or,
– Supplying nothing, in which case the bank warns that the client will be reported to the US anyway, and/or have their account closed or frozen.
Do not be tempted to ignore the letter, or to commit a federal crime by falsely telling the bank that you are not a US resident and/or taxpayer.
FATCA Forces Foreign Banks to Provide Your Information to the IRS
US taxpayers who received a FATCA compliance letter must understand that the banks are following the FATCA agreement between the US and the banks’ country. At this point, the bank has no interest in protecting you – they want to protect themselves, and their FATCA compliance letter, asking you to give them information, proves that. The bank is looking out for itself – isn’t it time you protected yourself from your foreign bank?
The truth is that you shouldn’t spend a significant amount of time trying to understand your FATCA letter. Your bank’s explanation of FATCA regulations or the impact of their FATCA letter on your US tax reporting obligations is difficult to understand, if not impossible.