Tata Mutual Fund FATCA Letters and Indians in the United States
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.