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FFI FATCA Requirements: Introduction | FATCA Tax Lawyer & Attorney

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Since July 1, 2014, the Foreign Account Tax Compliance Act (“FATCA”) has imposed a heavy compliance burden on Foreign Financial Institutions (“FFIs”). Many of these FFIs have struggled with developing a good understanding of their new FATCA requirements even to this day. In this brief essay, I want to provide a general overview of these FFI FATCA requirements so that readers can begin to develop an understanding of FATCA.

FFI FATCA Requirements: Background Information

FATCA was enacted into law in 2010. The most important idea behind the new law was to combat US tax noncompliance of US taxpayers with foreign financial assets.

There are several important parts of FATCA, but the most important one of them was forcing FFIs to identify US owners of foreign financial assets, collect certain information about them and share it with the IRS. Failure to do so meant facing a FATCA penalty in the form of a 30% withholding tax on the gross amount of all transactions with a noncompliant FFI. In essence, FATCA turned FFIs around the world into free IRS informants.

FFI FATCA Requirements: Three Categories

What precisely does FATCA require FFIs to do in order to be FATCA-compliant? If we look broadly at the FFI FATCA requirements, we can group all of these requirements into three broad categories. Each of these categories consists of a myriad of smaller but still fairly complex FATCA compliance requirements and requires a deep understanding of new FATCA terms.

The first and most important category of FATCA requirements is to collect the required due diligence information concerning all account holders, investors and payees. “Collecting” here means obtaining the required due diligence information and documentation. In other words, FATCA has to be part of an FFI’s “Know Your Client” (“KYC”) procedures.

Additionally, these new due diligence requirements apply not only to new customers, but also to pre-existing account holders. Pre-existing account holders are the account holders who already had accounts with an FFI as of the time FATCA was implemented (i.e. July 1, 2014) or sometimes a different date.

The second requirement is to report to the IRS three categories of persons: (a) all US account holders; (b) recalcitrant account holders; and © non-participating (i.e. FATCA-noncompliant) FFIs. This means that, under FATCA, FFIs must turn over to the IRS the identifying information concerning accounts held by US persons as well as point out the “bad apples” who refuse to comply with FATCA.

Recalcitrant account holders is a fairly complex FATCA term. In its most basic form, it refers to an account holder who does not supply the required FATCA information and who does not fall under any types of a waiver. In a future article, I will provide a more detailed description of this term, but, at this point, I would like to refer the readers to Treas Reg § 1.1471-5(g)(2).

Finally, the FFIs are charged with the requirement to coordinate FATCA withholding as necessary. In other words, the FFIs are required to impose FATCA noncompliance penalties on any FATCA non-compliant FFI, thereby turning FATCA in a worldwide self-enforcing system from which no FFI can escape.

FFI FATCA Requirements Are Interconnected

Needless to say that all three of these FFI FATCA requirements are deeply related to each other. For example, the due diligence requirement is essential to an FFI’s ability to properly comply with its FATCA reporting and withholding obligations. It is important to keep this connection between different FFI FATCA Requirements in mind while building an effective FATCA compliance system.

Contact Sherayzen Law Office to Find Out More About Your FFI FATCA Requirements

Sherayzen Law Office is a US international tax law firm that specializes in US international tax compliance, including FATCA compliance. We also help FFIs develop an effective FATCA compliance program as well as analyze existing FATCA compliance programs.

Contact Us Today to Schedule Your Confidential Consultation!

Japanese Bank Accounts : Main US Tax Obligations | FATCA Tax Lawyer

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Despite the fact that FATCA has been implemented already in July of 2014, a lot of US taxpayers are still unaware of their obligation to disclose their Japanese bank accounts in the United States. In this essay, I will discuss the three most important US international tax requirements concerning Japanese bank accounts: worldwide income reporting, FBAR and FATCA Form 8938.

Japanese Bank Accounts: Japanese Income Must Be Disclosed on US Tax Returns

All US tax residents must disclose their worldwide income on their US tax returns. This requirement includes all income generated by the Japanese bank accounts. This obligation applies to all types of income: bank interest income, dividends, capital gains, et cetera.

In this context, it is important to reject two incorrect, but commonly-held beliefs concerning the reporting of Japanese-source income. First, a significant number of US taxpayers believe that Japanese income does not need to be reported if it never left Japan. This is completely false; it does not matter where the income is earned or held – as long as you are a US tax resident, you must disclose your Japanese income on your US tax returns whether or not it was ever transferred to the United States.

The second and most common myth is the belief that, if the income is subject to Japanese tax withholding, it does not need to be reported in the United States. Some taxpayers hold this belief because of their familiarity with the territorial system of taxation, while others assume that this is true due to the prohibition of double-taxation under the US-Japan tax treaty.

In either case, this myth is also completely false. All US tax residents must disclose their Japanese income on their US tax returns even if it is subject to Japanese tax withholding or reported on Japanese tax returns. However, you may be able to take advantage of the Foreign Tax Credit to reduce your US tax liability by the amount of taxes paid in Japan.

Japanese Bank Accounts: FBAR

The Report of Foreign Bank and Financial Accounts, FinCEN Form 114 (popularly known as “FBAR”) is one of the most important reporting requirements that applies to Japanese bank accounts. Generally, a US person is required to file FBAR if he has a financial interest in or signatory authority or any other authority over foreign bank and financial accounts which, in the aggregate, exceed $10,000 at any point during a calendar year.

FBAR has a severe penalty system for failure to file the form, failure to provide accurate information on the form and failure to maintain supporting documentation for the amounts reported on FBAR. The penalties range from criminal penalties (i.e. actual time in jail) to willful and non-willful civil penalties. The civil penalties are adjusted for inflation each year.

Given the fact that FBAR penalties may completely destroy one’s financial life, US taxpayers should strive to do everything in their power to make sure that they comply with this requirement.

Japanese Bank Accounts: FATCA Form 8938

In addition to FBAR, US tax residents with Japanese bank accounts may be required to file Form 8938. Form 8938 is the creation of the Foreign Account Tax Compliance Act (“FATCA”). US tax residents must disclose their Specified Foreign Financial Assets (“SFFA”) on Form 8938 in each year their SFFA exceed the form’s filing threshold.

Form 8938 has a higher filing threshold than FBAR, but it is still relatively low, especially if the owner of Japanese bank accounts resides in the United States. For example, if a taxpayer resides in the United States and his tax return filing status is “single”, then he would only need to have $50,000 or higher at the end of the year or $75,000 or higher at any point during the year in order to trigger the Form 8938 filing requirement.

Moreover, SFFA is defined very broadly to include a lot of more financial assets than what is required to be reported on FBAR; hence, it is easier for US taxpayers to meet the Form 8938 filing Threshold. SFFA includes foreign bank and financials accounts, bonds, swaps, ownership interest in a foreign business, beneficiary interest in a foreign trust and many other types of financial assets. A word of caution: even when FBAR and Form 8938 cover the same assets, both forms must be filed despite the duplication of the disclosure.

The readers should also remember that Form 8938 has it own distinct penalty structure for failure to file the form or failure to comply with all of its requirements.

Contact Sherayzen Law Office for Professional Help With Reporting of Your Japanese Bank Accounts in the United States

This essay broadly covered three most important and most common reporting requirements concerning Japanese bank accounts. There may be a lot more of these requirements depending on your particular fact pattern.

Sherayzen Law Office has extensive experience working with Japanese clients and their bank accounts. We can help you identify your US international tax requirements and prepare all of the tax documents necessary to comply with them. Moreover, if you did not comply with any of these US tax obligations in the past, we will help you with your offshore voluntary disclosure to minimize your IRS penalties and avoid IRS criminal prosecution.

We have successfully helped hundreds of US taxpayers to deal with their US international tax compliance, and We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

Czech Bank Accounts: Lawyer Finds Compliance Problems With FBAR and FATCA

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For years, the Czech Republic has held a position within the top fifteen countries among our firm’s voluntary disclosure clients. At the end of May and early June of 2017, our firm’s owner, international tax attorney Eugene Sherayzen, made a trip to the Czech Republic to find out why there are so many clients with unreported Czech Bank accounts.

Ceska Narodni Banka

Ceska Narodni Banka

General Lack of Awareness of FBAR and FATCA With Respect to Czech Bank Accounts

While Mr. Sherayzen found Prague an astonishingly beautiful city, his investigation of FBAR and FATCA awareness confirmed what he already supposed for years – there are important gaps in awareness of these US tax compliance requirements. The results of his investigation also showed that while there were some signs of improvement in FATCA awareness, FBAR was still generally an unknown form.

While Mr. Sherayzen’s investigation was not done using any scientific method and his targeted sample cannot be considered as a properly representative survey, its results are nonetheless alarming.

They are particularly important for Czech citizens who are also US citizens or US permanent residents residing in the United States, especially if they opened their Czech bank accounts with Czech passports prior to moving to the United States. Mr. Sherayzen’s investigation identified this group of individuals as particularly vulnerable to failing to comply with US tax requirements, including FBAR.

Czech Bankers Often Do Not Inform Their Clients of FBAR and FATCA Obligations With Respect to Czech Bank Accounts

Additionally, Mr. Sherayzen found a general lack of awareness of the obligation of foreign bankers to inform their clients about FATCA and, especially, FBARs. Of the five banks chosen, Mr. Sherayzen was unsatisfied with level of FATCA preparedness of the Czech bankers. These results further supported Mr. Sherayzen’s original supposition that the Czech bankers’ lack of proper education about US tax requirements exacerbated and, in many instances, were directly responsible for his clients’ unawareness of their FBAR and FATCA obligations.

These results are too recent at this point and need further analysis and confirmation in the future. Yet, it is clear that all US persons with Czech bank accounts need to urgently re-evaluate their current US tax compliance, especially if it is based on advice from Czech bankers.

Contact Sherayzen Law Office for Help With US Tax Compliance Concerning Czech Bank Accounts

If you have undisclosed Czech bank accounts or any other foreign assets, contact Sherayzen Law Office as soon as possible. Failure to do it before the IRS initiates an investigation may result in imposition of draconian FBAR penalties.

We have helped hundreds of US taxpayers around the world to bring their tax affairs into fully compliance with US laws. We can help You!

Contact Us Today to Schedule Your Confidential Consultation!

IRS Wins Another Case Against Secret Belize Bank Accounts | FATCA Lawyers

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On March 23, 2017, the IRS scored another major victory against using Belize bank accounts to hide income. On that day, Mr. Casey Padula pleaded guilty to conspiracy to commit tax and bank fraud, including using Belize bank accounts to conceal almost $2.5 million.

Facts Concerning Using Belize Bank Accounts to Commit Tax Fraud

According to documents filed with the court, Mr. Padula was the sole shareholder of Demandblox Inc. (Demandblox), a marketing and information technology business. Mr. Padula conspired with others to move funds from Demandblox to his Belize bank accounts, disguising the transfer of funds as business expenses in Demandblox’s corporate records. At the same time, Mr. Padula created two offshore companies in Belize: Intellectual Property Partners Inc. (IPPI) and Latin American Labor Outsourcing Inc. (LALO). He opened and controlled bank accounts in the names of these entities at Heritage International Bank & Trust Limited (Heritage Bank), a financial institution located in Belize.

From 2012 through 2013, Demandblox “paid” to the bank accounts at Heritage Bank approximately $2,490,688. The transfers were recorded as intellectual property rights or royalty fees on Demandblox’s corporate books and deducted as business expenses on the company’s 2012 and 2013 corporate tax returns, causing a tax loss of more than $728,000. In reality, Mr. Padula used the funds to pay for personal expenses and purchase significant personal assets.

Furthermore, Mr. Padula also conspired with investment advisors Mr. Joshua VanDyk and Mr. Eric St-Cyr at Clover Asset Management (CAM), a Cayman Islands investment firm, to open and fund an investment account that he would control, but that would not be in his name. Heritage Bank had an account at CAM in its name and its clients could get a subaccount through Heritage Bank at CAM, which would not be in the client’s name but rather would be a numbered account. Mr. Padula transferred $1,000,080 from the IPPI bank account at Heritage Bank in Belize to CAM to fund his numbered account.

Facts Concerning Bank Fraud

In addition to committing tax fraud, Mr. Padula also conspired with others to commit bank fraud.

Mr. Padula had a mortgage on his Port Charlotte, Florida home of approximately $1.5 million with Bank of America (BoA). In 2012, he sent a letter to the bank stating that he could no longer repay his loan. At the same time, Mr. Padula provided Mr. Robert Robinson, III, who acted as a nominee buyer, with more than $625,000 from his IPPI bank account in Belize to fund a short sale of Mr. Padula’s home. Mr. Padula and Mr. Robinson signed a contract, which falsely represented that the property was sold through an “arms-length transaction,” and agreed that Padula would not be permitted to remain in the property after the sale.

In fact, Mr. Padula never moved from his home. Moreover, less than two months after the closing, Mr. Robinson conveyed it back to Mr. Padula by transferring ownership to one of Mr. Padula’s Belizean entities for $1. Mr. Robinson also pleaded guilty on March 23, 2017, to signing a false Form HUD-1 in connection with his role in the scheme.

Potential Penalties Concerning Using Belize Bank Accounts to Commit Tax Fraud

Mr. Padula faces a statutory maximum sentence of five years in prison, a term of supervised release and monetary penalties. As part of his plea agreement, Mr. Padula agreed to pay restitution to the IRS and to BoA in the amount of $728,609. Mr. Robinson faces a statutory maximum sentence of one year in prison, a term of supervised release, restitution and monetary penalties.

Lessons of the Padula Case

The Padula Case is a classic illustration of facts that often lead to a criminal prosecution by the IRS. First, he was shifting US-source income to Belize bank accounts by creating an artificial loss between the entities that he controlled.

Second, Mr. Padula employed a sophisticated offshore corporate structure to actively attempt to conceal his ownership of his Belize bank accounts. While the guilty plea does not specifically state how the IRS first found out about Mr. Padula’s structure, it appears to me that it occurred in connection with the IRS criminal cases against Mr. VanDyk and Mr. St-Cyr.

Finally, Mr. Padula utilized Belize, a tax haven, to commit tax fraud. This is always a factor for the IRS with respect to deciding whether to commence a criminal investigation.

Additionally, the Padula Case is another confirmation there are no safe havens anymore. Especially since the implementation of FATCA, the IRS has now the capacity to trace the transfer of funds, identify the tax violations and present sufficient evidence to prosecute a criminal case.

Contact Sherayzen Law Office for Professional Help With the Voluntary Disclosure of Your Belize Bank Accounts

If you have undisclosed Belize bank accounts or undisclosed offshore assets in any other foreign country, you should contact Sherayzen Law Office to explore your voluntary disclosure options as soon as possible. If the IRS commences an investigation against you, this very fact may result in the closure of all voluntary disclosure paths currently available to you.

Sherayzen Law Office has accumulated tremendous experience in helping its clients with their Offshore Voluntary Disclosures, including Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!