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The Long Reach of the FATCA Letter Notice

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The FATCA Letter Notice is a critical component of a FATCA Letter that is causing significant problems for millions of US owners of foreign financial accounts. Yet, a lot of the FATCA letter recipients are completely unaware of the full impact of the FATCA Letter Notice. In this article, I will provide a general explanation of the FATCA Letter Notice and its importance to US owners of foreign bank and financial accounts.

What is a FATCA Letter?

When FATCA was implemented in July of 2014, foreign banks and financial institutions (“FFIs”) started to mail letters to their clients aimed to verify information required for the FFI reporting under FATCA. These letters are called “FATCA Letters”.

The FATCA Letters serve two important functions for the FFIs. First, the questions contained in or referred to by a FATCA Letter are designed to help FFIs verify whether the account holder is a US person. Second, the FATCA Letter is designed to give notice to the US account holders that their accounts will be disclosed to the IRS.

In this article, I will concentrate only on the FATCA Letter Notice and its most significant impact on US taxpayers.

The FATCA Letter Notice

Very few people understand that the there is not just one FATCA Letter Notice, but two different FATCA Letter Notices that serve different functions – the express FATCA Letter Notice and the implicit FATCA Letter Notice. The express FATCA Letter Notice is the official notice with respect to the FFI’s own FATCA compliance. The implicit FATCA Letter Notice is the notice forced upon the US account holders with respect to their US tax compliance.

The Express FATCA Letter Notice

The express FATCA Letter Notice is very simple – the FFI puts the US account holder on notice that his or her account will disclosed to the IRS. This means that the FFI has complied with its due diligence requirements for the US tax purposes as well as the local bank privacy purposes.

The express FATCA Letter Notice is the one that most US taxpayers understand and the one that they are most concerned about. This is understandable because the express FATCA Letter Notice tells US account holders that their accounts will be disclosed to the IRS irrespective of whether the account holders want this disclosure and whether the timing of this disclosure is convenient to them.

The Implicit FATCA Letter Notice

The implicit FATCA Letter Notice consists of the forcing upon the US account holder the knowledge of their past non-compliance with US tax laws. This “forcing” element is accomplished by the FATCA Letter’s statements that all foreign accounts owned by US persons must be disclosed to the IRS by these very persons. As soon as he receives a FATCA Letter, the US person is on notice that his foreign accounts are subject to complex US tax compliance rules and, if it turns out that these accounts were never properly disclosed, he is non-compliant with respect to past filings. In essence, this is a “shock therapy” method of inducing US tax compliance.

This implicit FATCA Letter Notice of past US tax non-compliance is very dangerous for three interrelated reasons. First, it forces the US recipient of a FATCA Letter to conduct current year’s tax compliance to avoid willful non-compliance designation. The current year’s compliance is done irrespective of the recipient’s circumstances and his ability to do so. At the same time, it provides the IRS with the information that this US person owns foreign financial accounts that were never reported previously.

Second, the receipt of the FATCA letter means that the US account holder should promptly take the necessary steps to conduct some form of an offshore voluntary disclosure. Failure to take these steps or a significant delay in conducting a voluntary disclosure may result in the IRS investigation and the account holder’s inability to conduct a voluntary disclosure. Moreover, the delayed reaction to the FATCA Letter Notice may strengthen the IRS case for arguing willful non-compliance with respect to any delinquent FBARs and any other information returns.

Finally, since the US taxpayer is forced to react swiftly to the implicit FATCA Letter Notice (due to the other two factors described above), his ability to choose the right path of his voluntary disclosure may be constrained by the lack of the necessary documentation or knowledge of other important facts. With the changes that the IRS implemented with respect to the 2014 OVDP (now closed), SDOP and SFOP, it is important to remember that engaging in one form of a voluntary disclosure may result in the subsequent inability to switch to another voluntary disclosure path.

Contact Sherayzen Law Office for Help With Your FATCA Letter

As you can see, receiving a FATCA Letter Notice is an event of potentially important implications. An inadequate response to a FATCA Letter Notice may have a highly deleterious effect on the US account holder’s ability to conduct voluntary disclosure (which means facing the draconian FBAR civil and criminal penalties) or choose the right type of voluntary disclosure.

This is why, if you received a FATCA Letter, contact Sherayzen Law Office for help immediately. Our experienced international tax law firm has helped hundreds of US taxpayers like you to bring their US tax affairs into full compliance with US tax laws, and we can help you as well.

So, Contact Us Now to Schedule Your Initial Consultation! Remember, contacting Sherayzen Law Office is Confidential.

IRS Form W-9, FATCA and FBAR Compliance

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The Foreign Account Tax Compliance Act (“FATCA”) produced a major catalyst for the usage of Form W-9 by the banks in order to identify whether their clients are U.S. taxpayers. This article explores the connection between the IRS Form W-9, FATCA and FBAR compliance.

IRS Form W-9

The essence of the IRS Form W-9 is to allow a person, who is required to file an information return with the IRS, to obtain a U.S. taxpayer’s correct taxpayer identification number (TIN) in order to report the required transactions (for example, income paid to the taxpayer).

The taxpayer should use Form W-9 to provide his correct TIN to the person requesting it (the “requester”) and, where applicable, to certify that the taxpayer’s TIN is correct, that the taxpayer is not subject to backup withholding, and so on.

Form W-9 should be used only by U.S. persons.

FATCA and Form W-9

The recent developments in U.S. tax compliance laws and regulations, especially the enactment of FATCA, forced many overseas banks to identify which of their customers are U.S. taxpayers and report certain information about these taxpayers to the IRS.

This is why there has been a huge surge of Forms W-9 sent out by foreign banks to U.S. persons. In some countries, the foreign banks’ usage of Forms W-9 has been especially widespread. Among these countries are Switzerland, France, Germany and even India.

Where a U.S. taxpayer fails to supply Forms W-9, the foreign banks usually force the closure of a foreign bank account with all of its potentially negative consequences. Moreover, intentional failure by a U.S. taxpayer to supply Forms W-9 may be used by the IRS against such taxpayer as circumstantial evidence of willful failure to file the FBARs.

FBAR Compliance and Form W-9

It is important to recognize the direct link between Form W-9 and FBAR compliance. The exposure of non-compliance with Report of Foreign Bank and Financial Accounts (“FBAR”) is the true reason behind the IRS strategies to force foreign banks to send out Forms W-9 to their U.S. customers.

Receipt of Forms W-9 from a foreign bank by U.S. taxpayers who are not in compliance with the FBAR filings is a watershed event for such taxpayers (many of whom may not have even heard of the FBARs in the past). This is when the U.S. taxpayers should immediately contact an international tax attorney in order to conduct a voluntary disclosure of their foreign accounts (obviously, it is even better to do it independently of the receipt of Form W-9, but the form adds special urgency to such a disclosure).

Form W-9 and Offshore Voluntary Disclosure Program 2012

It should be recognized that receipt of Form W-9 by itself (i.e. without any IRS investigation or examination) does not prevent the eligibility to enter into a voluntary disclosure program.

In most situations, the 2012 Offshore Voluntary Disclosure Program (“OVDP”) now closed, which was announced by the IRS on January 9, 2012, would still be available even after a taxpayer receives Form W-9. On the other hand, if the taxpayer provides the required information on Form W-9 to a foreign bank and the IRS begins an investigation of this taxpayer (after receiving the relevant information from the bank), then the taxpayer is likely to be precluded from participating in the OVDP.

Contact Sherayzen Law Office For Help With Voluntary Disclosure of Foreign Accounts

If you received Form W-9 and you have not been in compliance with the FBAR requirements, you should contact Sherayzen Law Office immediately for professional legal assistance. Our experienced voluntary disclosure firm will analyze the facts of your case, determine the extent of your FBAR (and any other U.S. tax compliance) liability, advise you on the available options, implement the best option of your choice (including filing of all necessary tax forms and amending prior tax returns), and provide rigorous IRS representation.