Barclays Closes Bank Accounts & Suspends Funds under FATCA
As one of the few firms worldwide that focuses their entire practice on IRS Offshore Voluntary Disclosure, we have seen the evolution of the FATCA Letter firsthand.
FATCA (Foreign Account Tax Compliance Act) is a law designed to reduce offshore tax evasion by requiring individuals (and businesses) to report and disclose their foreign bank accounts when they meet certain threshold requirements.
More than 100 foreign countries and tens of thousands of foreign financial institutions have agreed to report U.S. account information to the US government.
This has made it very difficult for U.S. account holders to open accounts in foreign countries. Essentially, if you are a U.S. Person (US Citizen, Legal Permanent Resident, or Foreign National who meets the Substantial Presence Test) these foreign banks no longer want your business.
*In fact, some banks are going to great lengths to comply with FATCA, including suspending or closing your account.
We have represented numerous individuals who have accounts in the UK at Barclays. At the inception of FATCA, the Barclay’s FATCA Letter was similar to most other FATCA letters a person may receive.
Unfortunately, in recent weeks we have seen the evolution of the letter evolve into a FATCA Email, which not only warns the individual about FATCA, but has taken a unilateral step to close the and freeze the funds in a separate account of which the individual cannot access until the U.S. Account Holder can prove to Barclay’s that he or she is in compliance.
Example: Michelle receives an email from Barclays saying that it looks like she is in the US account holder (in other words, Barclays has information that Michelle is a US Green Card Holder – even though she has lived in the UK for more than 20+ years). Michelle takes a few weeks to process the information, learn about FATCA, and decide how she should respond.
After a few weeks have gone by, Michelle receives a bank statement showing a zero balance for that account they used to have more than 700,000 pounds. Michelle immediately follows up with the bank, only to learn that the bank closed the account and placed the funds into suspended status; Michelle must now prove compliance with FATCA in order to have Barclay’s release the funds.
Getting into IRS Voluntary Disclosure Compliance
If you have unreported foreign accounts or offshore income, it is important to get into compliance. One of the fastest and most effective methods for compliance is through one of the offshore disclosure programs.
When you are amending your tax returns (or completing them for the first time under the streamlined form program), you should be sure to include all the foreign taxes you paid on a foreign tax credit form 1116.
While the credit may not be a dollar-for-dollar credit (the foreign tax credit cannot be used to reduce other US sourced taxed income) it will work to significantly reduce your tax liability.
IRS Voluntary Disclosure of Offshore Accounts
Offshore Voluntary Disclosure Tax law is very complex. There are many aspects that go into any particular tax calculation, including the legal status, marital status, business status and residence status of the taxpayer.
When Do I Need to Use Voluntary Disclosure?
Voluntary Disclosure is for individuals, estates, and businesses who are out of compliance with the IRS and the Department of Treasury. What does that mean? It means that if you are required to file a U.S. tax return and you don’t do so timely, then you are out of compliance.
If the IRS discovers that you are out of compliance, you may become subject to extensive fines and penalties – ranging from a warning letter all the way up to tax liens, tax levies, seizures, and criminal investigations. To combat this, you can take the proactive approach and submit to Voluntary Disclosure.
Golding & Golding – Offshore Disclosure
At Golding & Golding, we limit our entire practice to offshore disclosure (IRS Voluntary Disclosure of Foreign and U.S. Assets). The term offshore disclosure is a bit of a misnomer, because the term “offshore” generally connotes visions of hiding money in secret places such as the Cayman Islands, Bahamas, Malta, or any other well-known tax haven jurisdiction – but that is not the case.
In fact, any money that is outside of the United States is considered to be offshore; the term offshore is not a bad word. In other words, merely because a person has money offshore (a.k.a. overseas or in a foreign country) does not mean that money is the result of ill-gotten gains or that the money is being “hidden.” It just means it is not in the United States. Many of our clients have assets and bank accounts in their homeland countries and these are considered offshore assets and offshore bank accounts.
The Devil is in the Details…
If you do have money offshore, then it is very important to ensure that the money has been properly reported to the U.S. government. In addition, it is also very important to ensure that if you are earning any foreign income from that offshore money, that the earnings are being reported on your U.S. tax return.
It does not matter whether your money is in a country that does not tax a particular category of income (for example, many Asian countries do not tax passive income). It also does not matter if you are a dual citizen and/or if that money has already been taxed in the foreign country.
Rather, the default position is that if you are required to file a U.S. tax return and you meet the minimum threshold requirements for filing a U.S. tax return, then you have to include all of your foreign income. If you already paid foreign tax on the income, you may qualify for a Foreign Tax Credit. In addition, if the income is earned income – as opposed to passive income – and you meet either the Bona-Fide Resident Test or Physical-Presence Test, then you may qualify for an exclusion of that income; nevertheless, the money must be included on your tax return.
What if You Never Report the Money?
If you are in the unfortunate position of having foreign money or specified foreign assets that should have been reported to the U.S. government, but which you have not reported — then you are in a bit of a predicament, which you will need to resolve before it is too late.
As we have indicated numerous times on our website, there are very unscrupulous CPAs, Attorneys, Accountants, and Tax Representatives who would like nothing more than to get you to part with all of your money by scaring you into believing you are automatically going to be arrested, jailed, or deported because you have unreported money. While that is most likely not the case (depending on the facts and circumstances of your specific situation), you may be subject to extremely high fines and penalties.
Moreover, if you knowingly or willfully hid your foreign accounts, foreign money, and offshore assets overseas, then you may become subject to even higher fines and penalties…as well as a criminal investigation by the special agents of the IRS and/or DOJ (Department of Justice).
Getting into Compliance
There are five main methods people/businesses use to get into compliance. Four of these methods are perfectly legitimate as long as you meet the requirements for the particular mechanism of disclosure. The fifth alternative, which is called a Quiet Disclosure a.k.a. Silent Disclosure a.k.a. Soft Disclosure, is ill-advised as it is illegal and very well may result in criminal prosecution.
We are going to provide a brief summary of each program below. We have also included links to the specific programs. If you are interested, we have also prepared very popular “FAQs from the Trenches” for FBAR, OVDP and Streamlined Disclosure reporting. Unlikes the technical jargon of the IRS FAQs, our FAQs are based on the hundreds of different types of issues we have handled over the many years that we have been practicing international tax law and offshore disclosure in particular.
After reading this webpage, we hope you develop a basic understanding of each offshore disclosure alternative and how it may benefit you to get into compliance. We do not recommend attempting to disclose the information yourself as you may become subject to an IRS investigation insofar as you will have to answer questions directly to the IRS, which you can avoid with an attorney representative.
If you retain an attorney, then you will get the benefit of the attorney-client privilege which provides confidentiality between you and your representative. With a CPA, there is a relatively small privilege which does provide some comfort, but the privilege is nowhere near as strong as the confidentiality privilege you enjoy with an attorney.
Since you will be dealing with the Internal Revenue Service and they are not known to play nice or fair – it is in your best interest to obtain an experienced Offshore Disclosure Attorney.