Australia FATCA Letter – ANZ, CBA, NAB, Westpac | International Tax Lawyers
- 0.1 What is FATCA Compliance?
- 0.2 FATCA Letter
- 0.3 FBAR Reporting
- 0.4 Common Questions re: Reporting
- 0.5 What Does the IRS , DOT or DOJ do Next?
- 0.6 What are the Penalties for Unreported Foreign Money?
- 1 Basic Offshore Reporting Rules
- 1.1 Foreign Income
- 1.2 Foreign Accounts
- 1.3 Fines & Penalties
- 1.4 Customs Holds and Passport Revocation
- 1.5 Getting Into Compliance
- 1.6 The Dangers of A “Quiet Disclosure”
- 1.7 A Quiet Disclosure will only Make Matters Worse
As many Australians and other individuals with investments and money in Australia may be aware, FATCA is the Foreign Account Tax Compliance Act. FATCA has many components to it, but the aspect of FATCA that impacts individuals and small businesses the most is the foreign account reporting required by U.S. Persons.
When it comes to offshore reporting the key component is whether the person is a U.S. Person. Generally, a U.S. Person includes:
- U.S. Citizens
- Legal Permanent Residents (Green Card Holders)
- Former Legal Permanent Residents (Covered Expatriates)
- Foreign Nationals Subject to U.S. Tax under the Substantial Presence Test
If you fall into one of the aforementioned categories, it does not matter whether you live in the U.S., Australia, are a dual citizen of Australia and the United States, or live in a different country but are a U.S. person and have accounts or investments in Australia – you are still subject to U.S. Tax and Reporting Requirements.
And, if you are subject to U.S. Tax and have unreported foreign accounts, investments, business or earnings in Australia that you did not report to the U.S. (IRS), you may be subject to fines and penalties.
We will use this article to try to bring you some clarity on getting into compliance.
What is FATCA Compliance?
FATCA is designed to facilitate offshore compliance and promote intergovernmental cooperation through the execution of intergovernmental agreements which facilitates the transfer of information between countries. In other words, when the United States and a country such as Australia enter into a FATCA agreement, the purpose of the agreement is to promote tax compliance between the nations.
Australia and the United States achieve FATCA compliance through the reciprocal exchange of information regarding account holder status, For example, if you are a US person, or otherwise subject to US tax and/or simply just have a US address — and have an account in Australia — chances are the Australian bank in which you have an account will provide your information to the United States.
Thereafter, the United States will process the information and if the IRS discovers that you have unreported foreign account and income such as foreign rental income, bank interest, dividends, capital gains, etc., you may be hit with very high fines and penalties.
A FATCA Letter is a warning. The letter will come from a foreign financial institution such as a bank, brokerage, or investment house when it is unsure if the intended recipient of the letter is a U.S. Taxpayer. In other words, the FFI will evaluate its client base to determine which portion of the clients are either US taxpayers, live in the United States, or even just maintains or maintained a foreign address in the United States. For these unlucky taxpayers, the foreign financial institution will send out a FATCA letter.
The main purpose of the letter is to investigate the customer in order to ascertain whether the bank client has complied with IRS FATCA laws. Namely, has the taxpayer filed the necessary paperwork with both the Internal Revenue Service and Department of Treasury sufficient to show full compliance with FATCA, including FBAR (Report of Foreign Bank and Financial Accounts, 8938 (Statement of Specified Foreign Financial Assets), Schedule B (Interest and Ordinary Dividends) and more.
In accordance with international tax law compliance, taxpayers who meet the threshold requirements are required to file an FBAR.
An FBAR, is a “Report of Foreign Bank and Financial Accounts” form. It is a form that is filed online, directly with the Department of Treasury. Unlike the tax return, the form must be filed by June 30th of the tax year and there are no extensions available for filing it late. If you attempt to file it late, there can be serious repercussions, including fines and penalties – since it is considered Quiet Disclosure or Silent Disclosure in an attempt to circumvent the OVDP or Streamlined Program rules and regulations.
**UPDATE: Starting in 2017 for Tax Year 2016 – filing of your 2016 FBAR will be in accordance with the same time periods to file your tax returns, which is by April, 2017 unless you receive an extension of time to file the FBAR.
If you, your family, your business or your foreign trust or PFIC have more than $10,000 overseas in foreign accounts (either directly or indirectly) and either have ownership or signatory over the account, it is important that you have an understanding of what you must do to maintain FBAR (Report of Foreign Bank and Financial Accounts) compliance. There are very strict FBAR filing guidelines and requirements in accordance with general IRS tax law, Department of Treasury (DOT) filing initiatives and FATCA (Foreign Account Tax Compliance Act).
Filing FBARs and ensuring compliance with IRS International Tax Laws, Rules, and Regulations is extremely important for anyone, or any business that maintains:
- Foreign Bank Accounts
- Foreign Savings Accounts
- Foreign Investment Accounts
- Foreign Securities Accounts
- Foreign Mutual Funds
- Foreign Trusts
- Foreign Retirement Plans
- Foreign Business and/or Corporate Accounts
- Insurance Policies
- Foreign Accounts held in a CFC (Controlled Foreign Corporation); or
- Foreign Accounts held in a PFIC (Passive Foreign Investment Company)
Common Questions re: Reporting
Do I have to report my foreign retirement account?
Yes, most, if not all retirement accounts should be reported on an FBAR and FATCA Form 8938. While certain exceptions may apply, for the most part is better to err on the side of caution and report the account.
*Whether or not you have to pay tax on the earnings is a separate matter to be discussed with your
What forms do I use to report Investment Accounts?
The type of form you will use to report investment accounts will depend primarily on the type and amount of the investment (e.g., do you meet the minimum threshold requirements for reporting). The most common forms are a Form 3520-A (Trust Ownership), 5471 (Foreign Corporation) and 8621 (Passive Foreign Investment Company)
Do I have to report Foreign Life Insurance?
Generally, if the life insurance has a surrender value (in other words, the policy can be sold for value before completion of the policy) then it must be reported. In addition, if the life insurance or Life “Assurance” earns bonus, interest, or dividends than that income must be reported as well whether it is distributed or simply accrued.
What Does the IRS , DOT or DOJ do Next?
After the United States receives the information from the Australian financial institutions, the U.S. Government evaluates the information and the account holder becomes at higher risk for getting into trouble. Why? Because it is impossible to determine whether a person will be audited. With that said, the IRS is now armed with more information regarding your unreported income or accounts and that may lead to greater chances of audit.
What are the Penalties for Unreported Foreign Money?
The following is not exhaustive; it is a list of some of the more common penalties that are issued against individuals, estates, and businesses for failing to report foreign money.
As provided by the IRS:
Depending on a taxpayer’s particular facts and circumstances, the following penalties could apply:
– A Penalty for failing to file FBARs. The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.
– FATCA Form 8938. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
– A Penalty for failing to file Form 3520. The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.
– A Penalty for failing to file Form 3520-A. The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.
– A Penalty for failing to file Form 5471. The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.
– A Penalty for failing to file Form 5472. The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.
– A Penalty for failing to file Form 926. The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.
– A Penalty for failing to file Form 8865. Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.
– Fraud penalties imposed under IRC §§ 6651(f) or 6663. Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.
– A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1). Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.
– A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2). If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.
– An Accuracy-Related Penalty on underpayments imposed under IRC § 6662. Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty
– Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201), filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322. Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).
– A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000. A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000. A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.
Basic Offshore Reporting Rules
These are the most basic rules when it comes to foreign accounts and foreign income:
If you are either a US Citizen, Legal Permanent Resident (aka Green Card holder or recently gave up your Green Card) or foreign resident who meets the substantial presence test, then you are required to report your worldwide income to the IRS. This means that even if you do not have any US-based income, you are still required to report your worldwide income (even if it is the type of income which is not taxed in your home country such as interest and dividend income in most Asian countries). And, if you have enough foreign income to meet the minimum threshold for having to file a US tax return, then you are required to do so even if it is based on your foreign income alone.
If you meet the requirement for being a U.S. “Taxpayer” (even if you do not meet the threshold for having to file a US tax return), you are still required to file an annual FBAR (Report of Foreign Bank and Financial Accounts). The threshold is as follows: if at any time during the year, you have more than $10,000 in foreign accounts (whether the money is in one account or spread over numerous accounts), you are required to file an FBAR.
In addition, if you have significant amounts of money overseas, then you may also have to file additional forms such as an 8938 (FATCA Form) or 8621 (Passive Foreign Investment Company, which includes Foreign Mutual Funds along with as many other passive investments). There are many other forms you may have to file, but we determine those on a case-by-case basis.
Fines & Penalties
Unless you are criminal, chances are the IRS or Department of Justice will not be banging down your door to come drag you to jail. With that said, the fines and penalties can be very steep and depending on your particular circumstances, may include penalties upwards of 100% of the value of your foreign account. If the IRS believes you were willful (aka intentional), then they may launch a criminal investigation against you and the penalties and fines can get much worse from here, including Liens, Levies, Seizures…and worse.
Customs Holds and Passport Revocation
With the implementation of FATCA (Foreign Account Tax Compliance Act), the United States is heavily cracking down on offshore tax evasion and unreported foreign accounts in general. The IRS and US government have the power to both revoke your passport as well as possibly hold you at the airport “customs hold” to question you on the spot (usually outside the presence of your attorney).
Getting Into Compliance
Getting into compliance should be mandatory on your “to-do” list. Even though our firm, Golding & Golding, is based in Newport Beach, we represent clients worldwide. A majority of our clients live overseas in over 40 countries. We have helped numerous clients get into compliance and are regarded as one of the top Offshore Disclosure Law Firms worldwide.
To that end, there are three main methods of compliance:
(1) Streamlined Compliance
This program is for individuals who were unaware of any requirement to file an FBAR and/or report their income on a US tax return. The penalties under the streamlined program are significantly reduced and may possibly be waived depending on whether a person qualifies under the strict definition of foreign resident for offshore disclosure purposes.
This program is mainly for individuals and businesses who were willful, aka were aware they were supposed to report their foreign accounts but intentionally hid or kept the account/income information secret.
(3) Reasonable Cause Statement
This is not a particular program; instead, it is a method for getting to compliance while attempting to avoid any penalty. There are many pros and cons to this method depending on your specific situation, which must be evaluated carefully with your attorney before making a decision.
We provide a reduced fee telephone consultation to all potential clients (excluding CPAs, Lawyers, and/or other Tax Professionals) so that we can answer your questions. All calls are strictly confidential and the information is covered under the attorney-client privilege (even if you decide not to retain our firm).
Call now; let us help you.
The Dangers of A “Quiet Disclosure”
In a quiet disclosure, the person does not enter the program but rather simply amends their tax returns to include the unreported foreign income (schedule B), report the foreign accounts (8938 forms) and file FBAR Statements with the Department of the Treasury.
A Quiet Disclosure will only Make Matters Worse
Here’s the problem: If you were originally non-willful (in that you were unaware of the requirement to file an FBAR) but now you went ahead and willfully failed to pay the penalty, you may have bootstrapped your non-willful submission into full-blown tax fraud and tax evasion.
Why? Because you have now willfully evaded US tax, interest and penalties by knowingly filing an untimely FBAR or Amended Tax Return without payment penalty for money you know you earned in the past but had not paid any US tax on.
Click Here to read our article/case study: “Quiet Disclosure Case Study Example – From Submission to IRS Audit…to Jail“
List of Banks that May Comply with FATCA in Australia
- Adelaide Bank
- Advance Bank
- AMP Bank
- ANZ Bank
- Arab Bank Australia
- Auswide Bank
- Bank of America
- Bank of China
- Bank of Communications
- Bank of Melbourne
- Bank of Queensland
- Bank of Sydney
- Bank of Tokyo-Mitsubishi
- Bendigo and Adelaide Bank
- BNP Paribas
- BOQ Specialist Bank
- China Construction Bank
- Commonwealth Bank
- Defence Bank
- Delphi Bank
- Deutsche Bank
- G&C Mutual Bank
- Heritage Bank
- HSBC Bank
- Hume Bank
- Industrial and Commercial Bank of China
- ING Bank
- JP Morgan Chase Bank
- Macquarie Bank
- Mega International Commercial Bank
- Members Equity Bank
- Mizuho Bank
- National Australia Bank
- OCBC Bank
- P&N Bank
- Police Bank
- QT Mutual Bank
- Reserve Bank of Australia
- St. George Bank
- Sumitomo Mitsui Banking Corporation
- Taiwan Business Bank
- Teachers Mutual Bank
- The Royal Bank of Scotland
- United Overseas Bank
- Westpac Bank