If you are a US Citizen with non-US bank accounts, you may have received a letter from your financial institution regarding your FATCA status.  While letters may vary from one bank to another, the gist is the same: “We have reason to believe you may be a U.S. citizen or resident.”

While you may wonder why this mere fact seems to put you under a microscope, the reason behind this is the Foreign Asset Tax Compliance Act (“FATCA”), which was signed into law in 2010 and went into effect in July 2014.  This law requires non-US banks to determine whether or not each account holder is a U.S. person AND provide information to the IRS on that individual’s accounts.  

How, you may wonder, does the US government have the right to tell these foreign banks what to do?  Well, almost all foreign financial institutions are invested in some manner in U.S. markets.  If a bank won’t cooperate with FATCA, they are hit with a huge 30% withholding tax on payments they receive from U.S. sources.  So these banks suffer a large financial penalty if they refuse to “play ball” with FATCA requirements.  

I Received a Letter – Now What?

If you have received a letter from your non-US bank regarding your FATCA status, it is because they have identified “US indicia” that make them believe you are a US person.  This may include a US birthplace or passport on your bank application.  

You should respond promptly to this letter or risk the freezing or cancellation of your bank accounts.  If you can prove that you are NOT a US person (i.e. prove that you have citizenship in another country and have renounced U.S. citizenship), then you are in the clear from there.  Assuming you ARE a U.S. person, you need to provide the information requested and know that information on your accounts will be shared with the IRS.  

Note that even if you were to cancel your accounts immediately after receiving the letter, that bank is still required to report the existence of that account to the IRS.  If you have not been compliant with FBAR (Fincen 114) filings or Form 8938, you may be subject to significant penalties.  

I Have Not Received a Letter – What Should I Do?

As you can imagine, FATCA created an incredible administrative burden for these non-US banks.  FATCA is still relatively new, and the law did give banks a few years to scour their records for US indicia.  So just because you have not received a FATCA letter yet doesn’t meant that you won’t.  Additionally, just because you did not receive a letter doesn’t mean you will not be included in the information your bank sends to the IRS regarding their US account holders.  

Therefore, whether or not you have received a FATCA letter, if you have foreign financial accounts, and you believe you have not met all reporting requirements in past years, the time to act is now.  During the early years of FATCA, the IRS will be building the infrastructure to use the information provided by foreign banks to enable more efficient and automated enforcement of the compliance requirements.  

Your options for resolving these issues are far better if you identify and correct the problems yourself, rather than waiting for the IRS to notify you of non-compliance.  Contact our firm today to discuss your FATCA or Offshore Disclosure issues.