American Expat:  Don’t Ignore Bank’s “Know Your Customer FATCA Letter”

Whether you are one of the many Americans living overseas or happen to be someone investing in outside countries, your foreign bank has probably requested information from you in order to confirm your United States tax compliance status. If your financial institute has not already asked yet, rest assured, the important FATCA (Foreign Accounts Tax Compliance Act) letter is on its way. It is utterly important that you understand the consequences of this document. If you remain in the dark, you could face financial demise or even a criminal investigation.

It has been more than five years now since Congress enacted FATCA, and in turn, the IRS has put in place various amnesty programs which have allowed taxpayers to come forth with documentation pertaining to their foreign investments. Specifically, the IRS has been generous up until this point, allowing taxpayers to come clean with voluntary disclosures in order to get their foreign accounts compliant. However, this window of leniency will soon close and that means your tax records must be current and accurate.

Why You Got The Letter And Now What

A FATCA letter does not necessary carry with it doom and gloom. In simple terms, international banks – no matter where they are located – are required to disclose information on United States residents as part of law. The world’s financial system is the reporting and enforcement agent of the IRS and as such, banks must routinely review and update their clients’ records.   If banks fail to do their part, then they will face severe penalties from authorities and risk being locked out of the United States financial system, which would be detrimental to their business. Their incentive, therefore, for following the law, is great.

And so, any account holder who has $10,000 or more in assets and has indications of a United States connection will receive a FATCA letter. At this point, you can be quite certain that your financial institute will share information about you and your assets with the IRS. It is imperative that you do all you can to become compliant with tax reporting requirements which can include filing Form 8938, Form W-9, Form W-8, or simply report the foreign income on personal tax return; otherwise, you may be facing hefty penalties, and depending on the severity of the violations, even criminal charges.

So once you get the letter, the recommendation is that you respond as quickly as possible, and do alert the bank if you expect delays. You should do all that you can to file the proper paperwork to regularize your taxes. If you happen to run into complexities or you have not been filing your taxes appropriately, then it may be the opportune time to seek the help of a tax attorney. These professionals are up-to-date with the foreign tax laws and can expedite the filing of the correct forms pertinent to your circumstances.

As a caution, the worst thing you could do is to ignore the FATCA letter all together or just drag your feet with responding.   If the deadline for response approaches and you have not answered, then it is likely your funds will be seized and the IRS will be notified that your paperwork is incomplete, which will put you on alert – expect to hear from the IRS.

Critical Guidelines

Due to the strict time deadlines and severity of circumstances, you may want to reach out to a tax attorney to navigate you through the hurdles for filing the right paperwork for your overseas assets. This area of tax has many complexities that are not easily understood by the average person. In addition, because the IRS will soon be doing away with its amnesty programs for filers, it becomes imperative not to lose what leeway you may have.

A big part of our practice at Dallo Law Group encompasses foreign accounts. We have helped a great many clients bring their overseas assets current with the IRS and other tax agencies. Expediency, professionalism, and skill-based negotiations are among our firm’s top goals. For these reasons our attorneys are also CPAs. We understand that you have a lot at stake; therefore we make it our business to know tax and accounting as well legal matters. Do not hesitate to contact us with questions about FATCA or any other IRS issue.