FATCA Letters

Following the implementation of Foreign Account Tax Compliance Act (“FATCA”) on July 1, 2014, foreign banks around the world started sending out FATCA Letters to their US (or suspected US) customers who had accounts on record prior to as well as on June 30, 2014. In a previous article, I discussed the reason for FATCA Letters and their impact on US taxpayers with undisclosed foreign accounts. In this article, I would like to focus the discussion on what type of information is typically contained in FATCA Letters.

FATCA Letters: Background Information

FATCA is codified in the Internal Revenue Code Sections 1471 through 1474 and contains an unprecedented amount of new international tax requirements for US persons, foreign financial institutions (FFIs), and US withholding agents (USWAs).

For the purpose of this article, I will concentrate solely on the FATCA requirement to analyze pre-existing accounts and report them to the IRS. Currently, according to the new deadline extensions found in IRS Notice 2014-43, “pre-existing” accounts are those accounts that were maintained by FFIs prior to or on June 30, 2014.

These pre-existing accounts are the main target for FATCA letters sent out to their clients by foreign banks. Of course, FATCA letters may also apply to the accounts opened after July 1, 2014, but, in many cases, these accounts were already opened according to FATCA account opening procedures (hence, all of the questions that are usually contained in FATCA letters should have been asked at the point when the account was opened).

The purpose for FATCA letters is for the FFI to obtain the necessary information to comply with its own FATCA reporting requirements. Hence ,the content of the FATCA letters is going to be fairly uniform irrespective of the FFI that sends it, even though the format of FATCA letters may differ greatly among the countries and even FFIs within a country.

FATCA Letters: Typical Content

As I mentioned above, virtually every FATCA Letter is geared toward obtaining certain types of information which is necessary for the FFI’s own reporting to the IRS (either directly or through a national tax authority). The overall requested information can be divided into three categories:

1. Personal Information

FATCA letters first typically try to confirm the exact name, nationality and address of the account holder. Most FATCA letters will also ask for the date of birth, country of birth and the account holder’s telephone number.

2. Determination of US Status and Form W-9

This is the most critical part of FATCA Letters, because it aims at verifying whether the account holder is a US person in any common way. The exact format of this part differs greatly from bank to bank, but a typical FATCA letter would either request the account holder to fill-out a Form W-9 directly or first ask a few questions (such as “do you have US nationality”, “are you a US Lawful Permanent Resident”, or “Have you spent a substantial period of time in the USA”) and then ask to fill-out Form W-9 if any of these questions are answered positively.

Also, depending on a country, an FFI would also typically ask the taxpayer to sign some sort of a consent to the disclosure of FATCA data to the IRS. In Switzerland, it is always present.

3. Further Determination of Status Questions; Possible Forms W-8BEN and W-9

Once the first basic part of the US status determination is finished, FATCA letters go on to ask a second set of questions aimed at uncovering potential inconsistencies in the status claim and verify if the account holder may be a US person in some other way.

In this part, FATCA letters typically ask whether the account holder was born in the United States, is a US person for any other reason, has effectively connected US income, has US mailing address, and has a US telephone number.

If the answer to any of these questions is “yes”, FATCA letters would generally ask the taxpayer to provide further information. For example, where the account holder is a US person for any other reason or cannot prove that he is not a US person if he was born in the United States, then FATCA letters would request Form W-9 and a consent to the disclosure of FATCA data to the IRS.

On the other hand, if the account holder persists in being considered as a non-US person and can prove it, then FATCA letters would ask for Form W-8BEN and a non-US passport (or other similar documentation). In case the account holder was born in the United States but claims to be a non-US person, FATCA letters would demand a copy of the certificate of loss of US nationality.

W-8BEN may also be required if the account holder is not a US person but has US-source income.

Impact of FATCA Letters on US Account Holders

The basic purpose behind FATCA is to allow the IRS to easily identify a US person’s non-compliance with US tax laws concerning reporting of foreign-source income and foreign assets. FATCA letters allow the FFIs to quickly identify with a fair degree of certainty whether their account holders are US persons and ultimately relate this information to the IRS on Form 8966.

This means that US taxpayers with undisclosed foreign accounts are currently facing an imminent risk of a third-party disclosure of their tax non-compliance to the IRS. If these taxpayers do not do anything, the risk of the IRS finding them has become unacceptably high.

Moreover, if the IRS commences an investigation of these US taxpayers before they engage in any type of voluntary disclosure, these taxpayers are not likely to be able to enter the IRS Offshore Voluntary Disclosure Program leaving them potentially unprotected to the draconian FBAR criminal and civil penalties as well as potentially large income tax penalties.

Thus, the receipt of FATCA letters is a critical legal event that starts the clock for these taxpayers in terms of their ability to voluntarily disclose their accounts. This means that these taxpayers need to act quickly and immediately consult an international tax attorney who specializes in this area to explore their voluntary disclosure options.

Contact Sherayzen Law Office if You Received a FATCA Letter

If you have undisclosed foreign accounts and you received a FATCA letter from your foreign bank, contact Sherayzen Law Office immediately. Mr. Eugene Sherayzen is an experienced international tax attorney who has successfully helped hundreds of US taxpayers like you to bring their affairs back into US tax compliance. Sherayzen Law Office, Ltd. can help you!

Contact Us to Schedule Your Confidential Consultation Now!

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