Year 2017 marked an important increase in FATCA compliance throughout the Middle East, despite the fact that most countries of this region did not sign a FATCA implementation treaty. US owners of Egyptian bank accounts were among the most affected in the area. In this brief essay, I will explain what receiving a FATCA Letter means for a US owner of undeclared Egyptian bank accounts and what a US owner of undeclared Egyptian bank accounts should do.
Egyptian Bank Accounts: What is FATCA Letter?
An important part of the Foreign Account Tax Compliance Act (“FATCA”) is the requirement that foreign financial institutions (“FFIs”) gather certain information concerning their clients, including the verification of their US tax residency status. In order to comply with this requirement, FFIs send out special letters to their clients to collect the necessary FATCA information. These letters are commonly known as FATCA letters.
FATCA letters can be mailed or emailed, depending on the contact policy of a particular FFI in a particular country as well as contact information that FFI has with respect to its clients. So far, it appears that the majority of FATCA letters sent out by Egyptian banks concerning Egyptian bank accounts are mailed to their clients.
Egyptian Bank Accounts: What does Receiving a FATCA Letter Mean for a US Owner?
Whenever a US owner receives a FATCA letter concerning his undisclosed Egyptian bank accounts, this is an important event for US tax compliance purposes. Let’s concentrate on the three most important consequences.
First, the most immediate impact of receiving a FATCA letter is that it definitely means that this particular owner of Egyptian bank accounts was identified as a potential US tax resident. In other words, from that point on, the owner will have to face the consequences of not disclosing his Egyptian bank accounts to the IRS and he has to make at least one of the following three choices:
1. The owner can disregard the letter and never respond to it. The consequence of this action closure of the owner’s Egyptian bank accounts by his Egyptian bank and reporting of the owner as a “recalcitrant” taxpayer to the IRS;
2. The owner can dishonestly respond to the FFI that he is not a US tax resident. If he does it, he is basically creating circumstantial evidence for the IRS that his prior US tax compliance concerning his Egyptian bank accounts was willful. Moreover, it may actually cause an IRS investigation if the information that the owner supplies to the Egyptian bank does not otherwise match the information that the IRS has already collected from other sources; or
3. The owner can disclose to the bank that he is a US tax resident. Such an outright, honest disclosure is likely to be interpreted in favor of the owner’s non-willfulness with respect to his prior US tax noncompliance. This action, however, implies that the owner should immediately seek help from Sherayzen Law Office with respect to his IRS voluntary disclosure options (see the third consequence of receiving a FATCA letter below).
The second consequence of receiving a FATCA letter is that it may act as a notice to the owner of undisclosed Egyptian bank accounts that he is required to report them and the foreign income they produce to the IRS. It will be an important factor with respect to whether the owner would be later able to certify his non-willfulness if he chooses to do his voluntary disclosure through Streamlined Filing Compliance Procedures.
Finally, receiving a FATCA letter means that the clock has already started for the taxpayer to beat the Egyptian bank’s disclosure of his Egyptian foreign accounts to the IRS. In other words, the owner needs to explore his voluntary disclosure options as soon as he receives the FATCA letter. If the IRS starts an investigation of the owner’s prior tax noncompliance before his voluntary disclosure or (in case of the IRS Offshore Voluntary Disclosure Program) before he files his Pre-Clearance Request, the owner of Egyptian bank accounts is very likely to be prevented from doing any type of a voluntary disclosure except the one based on the Reasonable Cause Exception (assuming he is able to satisfy the requirements of this statutory defense).
What Should a US Owner Do If He Receives a FATCA Letter Concerning His Egyptian Bank Accounts?
If an owner of Egyptian bank accounts receives a FATCA letter, the most recommended course of action for him is to contact an international tax law firm as soon as possible. He definitely needs to meet the deadline for answering to his Egyptian bank (or ask for extension, which may often be granted), but it is imperative that he contacts a tax professional who specializes in this area first.
Contact Sherayzen Law Office for Professional FATCA Help With Respect To Your Egyptian Bank Accounts
If you received a FATCA letter concerning your Egyptian bank accounts, contact Sherayzen Law Office for professional tax help as soon as possible. Offshore voluntary disclosure is our specialty. We have helped hundreds of US taxpayers around the globe to bring their US tax affairs concerning undisclosed foreign accounts in order, and we can help You!