What do you do if you receive a FATCA letter from your bank?
by: Claudine Gindel
First off... just what the heck is FATCA?
We have an article that does go into detail about FATCA (and why it's so annoying), but to break it down it's basically a federal law that requires all US taxpayers, even those living outside of the US, to report their non-US financial accounts yearly. It also requires all non-US financial institutions to search their records for suspected US persons and report their identities and assets to the US treasury.
A ‘FATCA letter’ is a letter from your foreign bank requesting certain information about your US tax status to confirm whether or not you are a US taxpayer and subject to FATCA. It usually arrives with a Form W-9 (Request for Taxpayer Identification Number and Certification) or Form W-8 (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)).
The US has set up "agreements" with foreign financial institutions "requesting" they share all of the information they have about US persons holding accounts with them (read: forced them to by threatening to cut off US money and penalize them).
So you've received a FATCA letter - now what?
Let's start with what NOT to do: Ignore the request. It's tempting! It can be scary to receive a letter from the IRS; we've had many clients come to our office with a pile of unopened letters from the IRS. This is a bad idea for a few reasons:
If you ignore the request, expect negative results rather quickly as the penalties against the bank from the US are too stiff for the bank not to comply - Even the Vatican has signed an agreement with the US sharing their account holders info
Your information will still be forwarded to the US and then you would be red flagged for being uncooperative in compliance - This is bad....being flagged by the IRS is worse than swimming in a chum filled shark tank (at least in that case, the sharks are paying attention to something other than you!)
Your accounts can be closed or funds frozen - The power the IRS legally holds is mind boggling
What to do...
If you've received a FATCA letter from your bank and you're compliant, you're going to want to respond to the bank and tell them that you're in the process of filing. It's also a good idea to request to set up a timeline with them in which you'll provide proof of compliance; usually anywhere from a month to 45 days is considered a reasonable request. You'll want to make sure that all of your documentation is accurate - this is one of those times that you may want to have a professional review all of your information to ensure it's correct.
If you've received a FATCA letter from your bank and you're not compliant, you may need to partake in the Offshore Voluntary Disclosure Program. It would be best if you could consider a Streamlined disclosure; the parameters are specific but the IRS has been more and more lenient as they've realized that processing a full OVDP is extremely onerous and time-consuming. Check out our FATCA series here for more information.
Americans living overseas are generally treated differently; it seems there's always a exception or special rule that applies to them. FATCA is no different as the rules vary for US residents and US expat taxpayers. In this case it actually benefits expats; under FATCA, residents have a $50,000 account limit trigger, but for expats it is $200,000.
If you've received a FATCA letter and are unsure what to do, contact us. We can help. Call us at 888-727-8796 or email firstname.lastname@example.org. Any information you share with us will be kept confidential.