Foreign Account Tax Compliance Act

What is a FATCA Letter?

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Over eight million U.S. taxpayers are expected to receive FATCA letters from their foreign banks. The first reaction of most taxpayers is to ask: “What is a FATCA letter?” The next question is: “What should I do if I receive(d) a FATCA Letter?” This article intends to answer both questions.

The FATCA Letter

A FATCA Letter is a communication from your foreign bank to you in order to obtain the information that the foreign bank is required to disclose to the IRS under the Foreign Account Tax Compliance Act (FATCA). The basic purpose of a FATCA Letter is to confirm whether you are a U.S. person. Once this information is confirmed, your foreign bank will disclose to the IRS all of the FATCA-required information, including the account numbers and balances of your foreign account.

Your FATCA Letter will usually arrive with the enclosed Forms W-9 and W-8BEN. Form W-9 usually pertains to U.S. citizens, while the Form W-8BEN is usually reserved for nonresident aliens (for U.S. tax purposes).

What Should I Do if I Received a FATCA Letter and I Have Not Reported My Foreign Accounts to the IRS?

Now that you know what a FATCA Letter is, it is important to consider what you should do when you receive one from your foreign bank.

The first thing is to understand what not to do – you should NOT ignore a FATCA Letter. You now know what a FATCA Letter is and you understand that it is used by the bank to comply with FATCA. Hence, if you ignore your FATCA Letter, the bank must do something to explain to the IRS why it could not comply with its reporting obligations. This “something” is likely to get you in trouble, because not only can your bank close your bank account (depending on the FATCA treaty), but your foreign bank will also report you as a “recalcitrant” taxpayer to the IRS together with the account number and the balance. This will likely lead to a later IRS examination which may prevent you from doing any type of a voluntary disclosure and subject you to draconian FBAR penalties.

Rather, with the understanding of the FATCA Letter, your plan of action should be as follows:

1. Understand the deadline by which you should respond to your FATCA letter and see if you have sufficient time to contact an international tax law firm (such as Sherayzen Law Office) prior to the deadline. If you do not have enough time, contact the bank and ask them for more time due to your need to seek legal advice – 30 to 45 days is usually considered reasonable.

However, try to avoid sending any information to the bank if possible without going through step #2 first. I have seen on the internet suggestions from some attorneys to immediately send to the bank Form W-9 before you consult an attorney; usually, such haste is premature and ill-advised. You need to know your legal position first.

2. Schedule a consultation with an international tax law firm immediately after you receive your FATCA Letter – Sherayzen Law Office would naturally be the best choice as the firm that specializes in dealing with FATCA letters.

3. Prepare as many documents and bank records as you can prior to the consultation. Now that you know about the FATCA Letter, you understand that it will involve your entire tax situation. Ask Attorney Eugene Sherayzen for a list of items needed to be supplied prior to the consultation.

4. Go through with the consultation. The consultation is not going to focus just on the FATCA Letter and how it impacts your case; rather, the majority of the consultation will be centered around the discussion of your legal position, your current tax reporting requirements and your voluntary disclosure options.

5. Retain an international tax law firm to do your voluntary disclosure. Again, my suggestion is to retain Sherayzen Law Office, because this is a firm that specializes in the voluntary disclosures and international tax compliance involving FATCA, FBAR, foreign trusts, foreign inheritance, foreign business ownership, and other IRS requirements that may be applicable to you.

UK FATCA Letters

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While the United Kingdom signed its FATCA implementation treaty in 2014, UK FATCA letters (i.e. FATCA letters from UK financial institutions) continue to pour into the mailboxes of U.S. taxpayers. In this article, I would like to discuss the purpose and impact of UK FATCA Letters.

UK FATCA Letters

UK FATCA Letters play an integral role in the FATCA Compliance of UK financial institutions. Under the Foreign Account Tax Compliance Act (FATCA), the UK foreign institutions are obligated to collect certain information regarding U.S. owners of UK bank and financial accounts and provide this information to the IRS. The collected information must include the name, address and social security number (or, EIN number) of U.S. accountholders.

In order to collect the required information and identify who among their clients is a US person for FATCA purposes, the UK financial institutions send UK FATCA Letters to their clients, asking them to provide the information by the required date. If there is no response within the required period of time (which may be extended), the UK financial institutions report the account to the IRS with the classification as a “recalcitrant account”.

UK FATCA Letters and Undisclosed UK Bank and Financial Accounts

While UK FATCA Letters are important to FATCA compliance of UK financial institutions, they also may have important impact on U.S. taxpayers with undisclosed bank and financial accounts in the United Kingdom, particularly on the ability of such U.S. taxpayers to timely disclose their foreign accounts.

Once a U.S. taxpayer receives UK FATCA Letters, he should be aware that the clock has started on his ability to do any type of voluntary disclosure. This is the case because UK FATCA Letters demand a response within certain limited period of time. Then, the UK financial institutions will report the account to the IRS, which may prompt IRS examination which, in turn, may deprive the taxpayer of the ability to take advantage of any type of a voluntary disclosure option.

Furthermore, UK FATCA Letters start the clock for the taxpayers to do their voluntary disclosure in an indirect way. If the taxpayers do not complete their voluntary disclosure within reasonable period of time (which may differ depending on circumstances) after they receive the letters, the IRS may proceed based on the assumption that prior noncompliance with U.S. tax requirements by the still noncompliant taxpayers was willful.

Finally, UK FATCA Letters may impact a U.S. taxpayer’s legal position with respect to current and future tax compliance, because UK FATCA Letters can be used by the IRS as evidence to prove awareness of U.S. tax requirements on the part of noncompliant U.S. taxpayers. This is particularly relevant for taxpayers who receive these letters right before the tax return and FBAR filing deadlines.

Contact Sherayzen Law Office if You Received UK FATCA Letters

If you received one or more UK FATCA Letters from foreign financial institutions, contact Sherayzen Law Office as soon as possible. Attorney Eugene Sherayzen is one of the world’s leading professionals in the area of offshore voluntary disclosures and he will personally analyze your case and create the appropriate voluntary disclosure strategy. Then, under his close supervision, his legal team will implement this strategy, including the preparation of all required tax forms.

Call Us Today to Schedule Your Confidential Consultation!

Indian FATCA Letters

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As the FATCA deadline to report Indian preexisting accounts approaches for Indian foreign financial institutions, more and more Indian-Americans and Indians who live and work in the United States receive Indian FATCA Letters (i.e. FATCA letters from Indian foreign financial institutions).

Many U.S. taxpayers of Indian origin are completely unprepared for Indian FATCA Letters and do not understand what they need to do. In this article, I would like to discuss the origin and purpose of Indian FATCA Letters as well as what you should do if you received such a letter.

Indian FATCA Letters

Indian FATCA Letters are the tools used by Indian foreign financial institutions to comply with their FATCA obligations. Since its enaction into law in 2010, the Foreign Account Tax Compliance Act (FATCA) has had a tremendous impact on global tax information exchange, forcing foreign financial institutions from more than 110 jurisdictions to comply with FATCA provisions.

One of the most prominent aspects of FATCA is the fact that it forces foreign financial institutions to report (directly or indirectly) certain information regarding U.S. owners of foreign bank and financial accounts. In essence, foreign financial institutions around the world are now forced to play the role of IRS informants, actively spying and turning over information regarding foreign financial activities of U.S. taxpayers to the IRS.

FATCA is implemented worldwide through a network of bilateral treaties. India signed such a treaty which came into force on August 31, 2015, forcing Indian foreign financial institutions to adopt FATCA-compliant procedures.

Indian FATCA Letters represent this compliance effort by Indian foreign financial institutions. In particular, Indian FATCA Letters are designed to collect various information required by FATCA, such as: the name and address of a U.S. taxpayer, the tax identification number of a U.S. taxpayer, and other information required to determine the U.S. tax status of the accountholder.

Indian FATCA Letters and Undisclosed Indian Bank and Financial Accounts

Indian FATCA Letters may have profound impact on U.S. taxpayers with undisclosed bank and financial accounts in India. First of all, Indian FATCA Letters automatically establish the awareness of U.S. tax requirements on the part of U.S. taxpayers – i.e. after receiving these letters, the taxpayers must take prudent steps to assure current and future U.S. tax compliance if they wish to avoid willful noncompliance with consequent imposition of heavy IRS penalties. This is especially important for taxpayers who receive Indian FATCA letters right before the tax return and FBAR filing deadlines.

Second, Indian FATCA Letters “start the clock” for U.S. taxpayers who wish to do a voluntary disclosure. This is done in two ways – direct and indirect.

The direct impact of Indian FATCA Letters is the FATCA requirement that foreign financial institutions report the required FATCA information to the IRS with respect to their U.S. (or suspected U.S.) accountholders within certain limited period of time. If the taxpayer refuses to answer his Indian FATCA Letters, the financial institutions will report him to the IRS as a “recalcitrant” taxpayer. This, in turn, may lead to a subsequent IRS examination which may deprive the taxpayer of the ability to take advantage of any type of a voluntary disclosure option.

The indirect impact of Indian FATCA Letters is linked to the “knowledge” issue described above – Indian FATCA Letters start the clock for the taxpayers to do their voluntary disclosure. If they do not do it within reasonable period of time (which may differ depending on circumstances), the IRS may proceed based on the assumption that prior noncompliance with U.S. tax requirements by the procrastinating taxpayers was willful.

Contact Sherayzen Law Office if You Received Indian FATCA Letters

If you received one or more Indian FATCA Letters from foreign financial institutions, contact Sherayzen Law Office as soon as possible. Our experienced legal team is led by one of the leading experts in offshore voluntary disclosures in the world – attorney Eugene Sherayzen. He will personally analyze your situation, advise you with respect to your FATCA Letter, and develop your voluntary disclosure strategy. Then, our legal team will implement this strategy, including the preparation of all required tax forms.

Call Us Today to Schedule Your Confidential Consultation!

Tata Mutual Fund FATCA Letters and Indians in the United States

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Tata Mutual Fund FATCA Letters were some of the first FATCA letters received by U.S. investors in India. A lot of these U.S. investors were Indians born in India, but living and working in the United States. However, the process of sending FATCA letters is not over at this point. Therefore, more and more Indian-Americans should expect to receive Tata Mutual Fund FATCA Letters. In this article, I explore the purpose of Tata Mutual Fund FATCA Letters and how these letters affect Indians who live and work in the United States.

FATCA

The Foreign Account Tax Compliance Act (FATCA) became a law in 2010. The main purpose of FATCA is to combat tax noncompliance of U.S. taxpayers with foreign accounts. Since its enaction, FATCA was successfully implemented by most countries around the world and became a new global standard for the exchange of tax information. In fact, more than 110 jurisdictions today operate under the worldwide reach of FATCA.

What makes FATCA different from other tax regimes is the fact that its core target are foreign financial institutions and it has “teeth” in the form of 30% tax withholding on transactions done with noncompliant foreign financial institutions. While the 30% tax withholding provision is important, it is not directly relevant to our discussion.

On the other hand, it is very important to understand how FATCA impacts the behavior of foreign financial institutions – FATCA obligates foreign financial institutions to turn over certain information regarding foreign accounts owned by U.S. persons as well as certain information regarding the U.S. owners themselves. In essence, FATCA effectively turns all compliant foreign financial institutions into de-facto IRS informants.

This means that foreign financial institutions report to the IRS the information which, prior to FATCA, the IRS could only obtain after a long and expensive investigation. Therefore, the investigative reach of the IRS has grown enormously and the IRS is now able to find and track down with far more ease noncompliant U.S. taxpayers.

Furthermore, another part of FATCA is targeting U.S. taxpayers themselves by requiring them to report “Specified Foreign Assets” on Form 8938.

Tata Mutual Fund FATCA Letters

FATCA is usually implemented after an adoption of a FATCA implementation treaty. India signed the Model 1 FATCA treaty which came into force on August 31, 2015.

As a foreign financial institution, Tata Mutual Fund is obligated to comply with the obligations accepted by the Indian government under the FATCA agreement. For this purpose, Tata Mutual Fund needs to collect and turn over certain information regarding its U.S. investors.

Tata Mutual Fund FATCA Letters are designed exactly for this purpose – to collect the required FATCA information regarding U.S. investors into Tata Mutual Fund.

Impact of Tata Mutual Fund FATCA Letters on Indian-American Investors

Tata Mutual Fund FATCA Letters may have a profound impact on Indian who live and work in the United States while investing into Tata Mutual Fund, especially if this investment was not timely disclosed to the IRS. I would like to focus here on two issues: identification and voluntary disclosure.

First, Tata Mutual Fund FATCA Letters would allow IRS to identify noncompliant Indian-American investors into Tata Mutual Fund. This can lead to an IRS investigation and imposition of civil and even criminal penalties (depending on the gravity of tax noncompliance).

Second, by reporting noncompliant U.S. investors, Tata Mutual Fund FATCA Letters may trigger an IRS investigation that may prevent these U.S. investors from doing a timely voluntary disclosure. It must be remembered that, one of the fundamental conditions of all IRS voluntary disclosure options is that the U.S. taxpayer is not under IRS examination or investigation.

Hence, when a U.S. taxpayer receives Tata Mutual Fund FATCA Letters, the clock starts on his ability to do a timely voluntary disclosure. On the other hand, if the taxpayer refuses to provide the requested information, he may be classified as a “recalcitrant taxpayer” (although, the Indian FATCA Agreement offers better treatment to recalcitrant taxpayers than most other FATCA treaties).

Contact Sherayzen Law Office if You Received a FATCA Letter from India

If you are an Indian-American or just an Indian who lives and works in the United States and you received a FATCA letter from your Indian financial institution, please contact Sherayzen Law Office for experienced help. Our professional legal team will thoroughly analyze your situation, propose the best strategy with respect to responding to the FATCA Letter, review your voluntary disclosure options and prepare all legal and tax documents required to complete your voluntary disclosure.

Call Us Today to Schedule Your Confidential Consultation!

Jordanian Bank FATCA Letters

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As FATCA continues its triumphant march across the globe, banks from more and more countries continue to send out FATCA letters to their US customers. Recently, the banks in the Kingdom of Jordan sent out additional FATCA letters (hereinafter, “Jordanian Bank FATCA Letters”). Jordanian Bank FATCA letters caught many U.S. taxpayers by surprise; some even refuse to believe that they are obligated to provide this type of information to their banks. Yet, noncompliance with the requests of Jordanian Bank FATCA Letters may have grave consequences for US taxpayers.

FATCA Background

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 to target tax noncompliance of U.S. taxpayers with foreign accounts. Since its enaction, this law established a new global standard for tax information exchange. More than 110 jurisdictions today operate under the worldwide reach of FATCA.

In essence, FATCA is used by U.S. authorities to obtain information regarding foreign accounts held by U.S. persons directly from foreign financial institutions by forcing these institutions to collect and send to the IRS information required by FATCA. Hence, FATCA effectively turns all FATCA-compliant foreign banks into IRS informants.

Additionally, FATCA requires U.S. taxpayers to report “Specified Foreign Assets” (this is a term of art in international tax law) on Forms 8938. Forms 8938 should be attached to the taxpayers’ U.S. tax returns and filed with the IRS.

Jordanian Bank FATCA Letters

FATCA is implemented worldwide through a network of bilateral treaties, which are divided in to Model 1 and Model 2 treaties. However, individual banks can also comply with FATCA without Model 1 and Model 2 treaties. A minority of countries follow this path, and the Kingdom of Jordan is one of them.

This means that Jordanian Bank FATCA Letters are sent out by Jordan banks not due to any Model 1 or Model 2 treaties between the United States and Jordan, but, rather, through direct FATCA compliance (i.e. Jordanian banks register with the IRS and provide the required information directly to the IRS).

The purpose of the Jordanian Bank FATCA Letters are similar to all other FATCA Letters – obtain the information required to be reported under FATCA by foreign financial institutions to the IRS. In particular, this includes information relevant to the account owner’s U.S. tax residency.

Impact of Jordanian Bank FATCA Letters on U.S. taxpayers with Undisclosed Foreign Accounts

Jordanian Bank FATCA Letters may have very important impact on U.S. taxpayers with undisclosed foreign accounts. In this article I want to emphasize the timing aspects of such letters.

By requesting FATCA information, Jordanian Bank FATCA Letters create a timetable for timely voluntary disclosure of the concerned U.S. taxpayers. First of all, the taxpayers who receive Jordanian Bank FATCA Letters have a deadline (ranging usually between 30-45 days, and, occasionally, 90 days) to file the letter with the bank. Since the bank sends the information supplied by U.S. taxpayers to the IRS, these U.S. taxpayers have a limited window of opportunity to timely disclose their foreign accounts. If a taxpayer refuses to provide the required information, the bank may still report him to the IRS as a “recalcitrant taxpayer” and even close his accounts.

Additionally, there is a more subtle impact of Jordanian Bank FATCA Letters on U.S. taxpayers – a notice of existence of FATCA and other U.S. tax reporting requirements. A lot of U.S. taxpayers are able to utilize Streamlined Procedures due to the fact that they did not know about the U.S. tax reporting requirements with respect to foreign accounts and foreign income. However, once U.S. taxpayers receive Jordanian Bank FATCA Letters, they can only claim their lack of knowledge with respect to prior years. It will be very difficult to sustain this argument with respect to current and future tax years.

Contact Sherayzen Law Office if You Received a FATCA Letter (from Jordan or from Any Other Country)

If you received a FATCA Letter from a foreign bank, contact Sherayzen Law Office for professional help. Our experienced legal team will thoroughly analyze your situation, propose the best strategy with respect to responding to the FATCA Letter, review your voluntary disclosure options and prepare all legal and tax documents to complete your voluntary disclosure.

Call Us Today to Schedule Your Confidential Consultation!