FATCA Letter: (New) How to Respond to a Foreign Bank

FATCA Letter: (New) How to Respond to a Foreign Bank

Responding to a FATCA Letter from Your Foreign Bank  

With all the news these days involving FBAR (Foreign Bank and Financial Account Reporting) and the recent Supreme Court ruling on civil non-willful FBAR penalties, it is easy to forget that the FBAR (FinCEN Form 114) is not the only international information reporting requirement for US Taxpayers with foreign accounts and assets. There is another form that is equally as important – especially with the change in penalty scheme for the FBAR — referred to as FATCA Form 8938. In fact, penalties for FATCA may even overshadow non-willful civil FBAR penalties — due to the potential ‘continuing failure to file penalty’. With more than 110 countries and several hundred thousand Foreign Financial Institutions (FFIs) actively reporting taxpayers to the US Government, there is a chance that you may become the recipient of a FATCA letter. Let’s take a brief look at what you can do after receiving a FATCA Letter.

Timing Your Response is Important

Oftentimes, it is when US taxpayers receive a FATCA letter that they learn for the first time that they are out of US tax and international information reporting compliance. This can lead to various fines and penalties depending on the type of account, such as FBAR and FATCA penalties. Before responding to the Foreign Financial Institution’s FATCA Letter, you should speak with an experienced Board-Certified Tax Law Specialist to go over your different options. That is because when at all possible, you will want to try to coordinate getting into compliance with the US government in conjunction with filing a timely response to the FATCA Letter.

Are you a US Person?

It is important to determine whether you are a US person for tax purposes before responding to the FATCA Letter. If you are a US person, then you would complete the form W-9 and affirm this fact with the Foreign Financial Institution – but not before you get your ducks in a row. If you are not a US person, it is important that you update the bank to let them know this fact, and you would submit a W-8 BEN instead of a W-9 Form.

Certifying vs Recertifying

Is this the first time you are completing a FATCA letter for your Foreign Bank or are you simply recertifying from prior years?  This can impact your strategy as well.

Is it a Large Account?

Depending how much money you have in the foreign account can impact the strategy you use. In other words, is it a dormant account with only a few dollars or is it a large account? Also, have you been filing FBAR and FATCA in prior years and may have just missed a few small accounts or have you never filed — or filed but failed to include a large account?

Consider all Strategies First

It is important to evaluate your total facts and circumstances before responding to the FATCA Letter. That is because it will help you to have a better understanding of what the process will be if you decide to proactively get into US tax compliance through one of the amnesty tax and offshore reporting programs. Depending on which specific Foreign Financial Institution you bank with, in conjunction with how much time you have left to respond to the letter — and whether an extension is possible — will all factor into your potential strategy.

Current Year vs Prior Year Non-Compliance

Once a taxpayer has missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.