FATCA (Foreign Account Tax Compliance Act), requires all foreign financial institutions (banks, insurers, investment brokers, etc) to report to the IRS information on financial accounts held by US citizens, those with dual citizenship, or foreign entities in which US taxpayers hold a substantial ownership interest. This means that your bank will inform the IRS about your financial assets and interests.
So, if you are one of the 8 million U.S. expats subject to the FATCA, what do you do if you receive one of these letters?
It is important NOT to ignore the letter. The letter may arrive with a Form W-9 or W-8, depending on the bank. Some banks send the form to further confirm whether a customer is a US taxpayer and subject to FATCA. U.S. Taxpayers residing Overseas should complete all forms and send them back to the bank within the time limit. The banks will state the time limit for completion.
So if you are a U.S. person there are three scenario’s:
The bank will share your information with the IRS. Depending on which country you live in and the bank you use; your account might be changed or closed. This applies mostly for bank accounts used for stock investments. However some banks have decided they don’t want US customers at all. We recommend to contact your bank and ask about their policy before you send in the form. This gives you time to move your account if necessary.
The same as above actually applies: the bank will share your information and it might affect your status as a client.
Many U.S. persons deem the law unreasonable. They were born in the U.S. and left when they were small or got citizenship through their parents. Although these individuals don’t feel American for tax purposes, they are unfortunately. Stating incorrectly that you are not a US person might lead to grave penalties. The IRS cancels out any amnesty program if they come to you instead of the other way around; furthermore before accepting your statement the bank might ask you to prove you’re not a U.S. person by showing a ‘certificate of loss of nationality’ or providing other proof that you were never a U.S .person to begin with.
The US has an amnesty procedure called ‘Streamlined Foreign Offshore procedure’ which allows taxpayers who are considered a U.S. person to file without any penalty if they were not aware of their obligation. This procedure also applies if you filed in the past while living in the US, moved to another country and never realized you had to continue filing.
Nothing really changes when you sent the letter back to your bank. We recommend getting in touch with your bank to ensure they will not change your account status.
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