Are U.S. Citizens Abroad Safe From FATCA, How Does FATCA Work?
Oftentimes, once a person learns about FATCA (Foreign Account Tax Compliance Act), and the fact that they may be out of IRS FATCA compliance, their mind fills with endless questions:
- How will the IRS find me if I live outside of United States?
- I have not traveled to the United States in many years?
- What if I give up my Citizenship (or Green Card)?
- Should I just close the foreign accounts?
- Did I use a U.S. ID card to open the account?
- Will I get arrested?
- Will the IRS take my passport?
- 1 FATCA Case Study: David
- 2 David Does Not Conduct Business in the U.S.
- 3 David Has Foreign Bank Accounts
- 4 David Does Not File U.S. Tax Returns
- 5 FATCA Enforcement, Bank Notice
- 6 David Receives a FATCA Notice from his Bank
- 7 David Google Researches FATCA
- 8 David Has Options
- 9 Do Not Act Hastily
- 10 You Have Methods for Getting IRS Compliant
- 11 Golding & Golding, A PLC
FATCA Case Study: David
David is originally from California and relocated to Taiwan in the early 2000s. Prior to settling down, David lived in many different countries including a stint in London, Australia, and Hong Kong…before meeting the love of his life in Taiwan.
Prior to his expatriation to Taiwan, David was a finance guru for a large U.S. based hedge fund. After relocating to Taiwan, David launched his own consulting business.
David is a friendly, outgoing, extroverted and gregarious person, and his business quickly flourished.
David Does Not Conduct Business in the U.S.
When David decided to move to Taiwan, he wanted to steer clear of any issues with the United States.
David is a U.S citizen, and while he does not travel to the United States often, if he expatriated and relinquished his citizenship, it would require him to pay a steep expatriation tax.
Since David’s goal was to detach himself from the clutches of the United States, the last thing David wants to do is to pay money to the United States for the privilege of leaving the United States. Therefore, David is still a US citizen.
David Has Foreign Bank Accounts
David has multiple bank accounts in Taiwan. When he opened the accounts, he traveled with his wife to do so, so that he would not have to only have his name on the account in case anything happened to him. As an added bonus, he figured that if the accounts were in his wife’s name with him having signature authority, then there would be no issue involving his U.S. Status.
Over the span of about 15-20 years, David opened around 10-15 bank accounts, with some of them being investment/bank account hybrid accounts, and other accounts devoted solely to receiving money his business.
Overall, David has about $7 million scattered amongst the different accounts.
David Does Not File U.S. Tax Returns
Upon landing in Taiwan, David joined an expat group, and received some bad advice. The advice was that as long as he only conducts his business outside of United States (and keeps his salary below $100,000) he did not have to file taxes.
David was a bit skeptical, since David had never heard this rule before, but David recalled hearing something about excluding foreign income, and since he wasn’t doing any business with the United States, he decided not to look into it any further.
Therefore, David did not file any U.S. Tax Returns since arriving in Taiwan.
FATCA Enforcement, Bank Notice
In the last few years more than 100 different countries have entered into reciprocal FATCA agreements with United States; Taiwan is one of them (and had an agreement in substance for several years). David knew something about FATCA but did not believe it applied to him, since he believed he was not required to file tax returns, and the bank accounts were not directly under his name.
David Receives a FATCA Notice from his Bank
In 2018, David receives a FATCA notice from the bank. It is nothing ominous, it is just that when David opened his account, he was required to provide identification and the identification he provided was his US passport.
The Bank wants proof that David has remained in compliance with all of its US tax requirements.
David Google Researches FATCA
David researches FATCA online, and quickly becomes fearful of this future. Unfortunately, David lands on various fear monitoring/scaremongering websites intended to scare individuals, and David becomes very concerned.
David next contacts some of these fear-mongering firms that offer free initial consultations and after about three of them, he comes to the conclusion that he is going to jail for at least five (5) years, he is going to lose all of his assets, and he is going to be fined millions of dollars.
David Has Options
Even the big bad Internal Revenue Service understands that not everybody is always aware of the requirements to report foreign income, accounts, assets, or Investments to the United States.
In fact, the IRS has developed various IRS Foreign Amnesty different programs designed to facilitate compliance of offshore and foreign reporting.
David’s best bet would be to research various different attorneys online, read their blogs, get a feeling which attorneys actually have experience in this area of law, and speak with some of the more experienced attorneys regarding what his options are.
Do Not Act Hastily
Nothing good ever comes from acting hastily.
We have been practicing law for many years. We understand the initial feeling (especially for an otherwise ethical person) to learn that he or she is out of compliance — and the immense fear that can take over a person’s body when they start reading misinformation and believing they are criminals, when they are not.
These firms want you to be fearful, and they prey upon this fear by offering free initial telephone consultations and then scaring you during the consultation in order to get you to sign a retainer…before it is too late.
Take a deep breath, conduct your research with due diligence (and a clear head) and you should be fine.
You Have Methods for Getting IRS Compliant
In reality, the IRS doesn’t issue penalties against every individual with undisclosed or unreported foreign money. In addition, the IRS offers various amnesty program to facilitate compliance.
Further, depending on your facts and circumstances you may qualify for various alternatives to amnesty, which may result in a complete penalty waiver.
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.